SUV Company is considering producing a line of luxury SUVs. Currently, SUV Company sells 4,200 standard SUVs annually for $45,400 each. They expect that they would sell 5,600 luxury SUVs for $80,500. If SUV Company produces the line of luxury SUVs, then they expect to only sell 3,300 standard SUVs. What is the incremental revenue generated from the potential project

SUV Company

The incremental revenue generated from the potential project is:

= $409,940,000.

Explanation:

a) Data and Calculations:

Selling price of Standard SUVs = $45,400

Number of Standard SUVs sold annually = 4,200

Luxury SUVs' price per unit = $80,500

Number of Luxury SUVs expected to be sold = 5,600

Reduced number of Standard SUVs sold as a result = 3,300

Lost sales of Standard SUVs = 900 (4,200 - 3,300)

The incremental revenue generated from the potential project is:

Sale revenue from Luxury SUVs = $450,800,000 ($80,500 * 5,600)

Lost revenue from lost sale of

 Standard SUVs =                                40,860,000 ($45,400 * 900)

Incremental revenue generated = $409,940,000

b) The incremental revenue is the additional revenue generated from the introduction of the Luxury SUVs, excluding the lost revenue from the non-sale of Standard SUVs as a result of the introduction.