New model introduction

Q:  My team came out with a new model last quarter. The following quarter the old model was not liquidated.  Could you please explain the liquidation procedure and the timing of it when you come out with a new model.

A:  In the quarter when a new model number is entered on the decision form, production of the old model ceases and only the new model is produced.  The market demand for that quarter (when the new model is being produced) is still for the old model, as the new model has not been announced.  Customers are not aware of the new model or of any perceived benefits of the new model until it is formally introduced to the market during the next quarter.

Sales of the old model during that quarter will be from inventory on hand of the old model.  If there are not sufficient goods in inventory, units of the new model may be substituted in any area where the inventory is exhausted.  Because all production for the quarter is of the new model, all shipments to sales offices during that quarter will be of the new model.

At the beginning of the next quarter, when the new model officially goes on sale, any unsold units of the old model will be sold to a liquidation agent.