Erosion Cost.

Fat Tire Bicycle Company currently sells 40,000 bicycles per year. The current bike is a standard balloon-tire bike, selling for $90 with a production and shipping cost of $35. The company is thinking of introducing an off-road bike with a projected selling price of $410 and a production and shipping cost of $360. The projected annual sales are 12,000 off-road bikes. The company will lose sales in fattire bikes of 8,000 units per year if it introduces the new bike, however.

1. The net contribution margin for the standard balloon bike is RM______.

2. Total sales revenue with the introduction of the new bike is RM________.

3. Net change in margin with new bike is RM_________.

4. Erosion cost is RM__________.

5. FTB should not introduce the new bicycle. A) True B) False