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Fit Co runs a local sports club. Last year the club made sales of $500,000. The owner of Fit Co is thinking to update the club equipment .
Sales are expected to rise to $550,000 in year 1 if the changes are made, thereafter increasing by 5%. If the changes are not made sales are expected to fall by $40,000 per year.
Calculate the incremental sales in year 1
Answer
550,000 – 500,000 = 50,00050,000 + 40,000= 90,000
Sir John, I don’t understand why the add the 40,000
If the make the changes then the sales will be 550,000.
If they do not make the changes then the sales will be 500,000 – 40,000 = 460,000.
Therefore the will be higher by 90,000 if they update the equipment.
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