Honda Motor Company is considering offering a $ 1 comma 800 rebate on its minivan, lowering the vehicle's price from $ 30 comma 200 to $ 28 comma 400. The marketing group estimates that this rebate will increase sales over the next year from 42 comma 000 to 53 comma 900 vehicles. Suppose Honda's profit margin with the rebate is $ 5 comma 650 per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits? Is it a good idea?

Question

Levine

Business

18 June, 10:43

Honda Motor Company is considering offering a $ 1 comma 800 rebate on its minivan, lowering the vehicle's price from $ 30 comma 200 to $ 28 comma 400. The marketing group estimates that this rebate will increase sales over the next year from 42 comma 000 to 53 comma 900 vehicles. Suppose Honda's profit margin with the rebate is $ 5 comma 650 per vehicle. If the change in sales is the only consequence of this decision, what are its costs and benefits? Is it a good idea?

+1

Answers (1)

Know the Answer?

Donovan Armstrong · Answer 1

Taking into consideration only the income, the increase in unit sales will not increase the income of Honda. It can impact in other ways, like a decrease in inventory.

Explanation:

Giving the following information:

Honda Motor Company is considering offering an $1800 rebate on its minivan

New price $30200

Old price $28400.

The marketing group estimates that this rebate will increase sales over the next year from 42000 to 53900 vehicles.

Honda's profit margin with the rebate is $5650 per vehicle.

Normal price:

Income = (5650+1800) * 42000 = $312,900,000

New price:

Income = 5650 * 53900 = $304,535,000

Taking into consideration only the income, the increase in unit sales will not increase the income of Honda. It can impact in other ways, like a decrease in inventory.