Question

In 2017, Canseco & Sons, a small environmental-testing firm, performed 12,200 radon tests for $270 each and 16,000 lead tests for $190 each. Because newer homes are being built with lead-free pipes, lead-testing volume is expected to decrease by 15% next year. However, awareness of radon-related health hazards is expected to result in a 7% increase in radon-test volume each year in the near future. Jim Canseco feels that if he lowers his price for lead testing to $180 per test, he will have to face only a 6% decline in lead-test sales in 2018. Read the requirements. Requirement 1. Prepare the sales budget for Canseco & Sons assuming that prices are held at 2017 levels. Sales Budget For the Year Ended December 31, 2018 Total revenues Radon tests Lead tests Total Requirement 2. Prepare the sales budget assuming that Canseco lowers the price of a lead test to $180. Sales Budget For the Year Ended December 31, 2018 Total revenues Radon tests Lead tests Total

Answer 1

Req 1 Sales Budget For the year ended December 31, 2018 Selling Price Units sold Total Revenue $ 270 13054 $ 3,524,580 $ 190 13600 $ 2,584,000 $ 6,108,580 Radon Test Lead Test Total Working: Units Sold Radon Test (increase by 7%) 12200 + (12200 x 7%) =12200+854 = 13054 test Lead Test (Decrease by 15%) 16000 - (16000 x 15%) =16000 - 2400 = 13600 test Req 2 Sales Budget For the year ended December 31, 2018 Selling Price Units sold Total Revenue $ 270 13054 $ 3,524,580 $ 180 15040 $ 2,707,200 $ 6,231,780 Radon Test Lead Test Total Working: Units Sold Radon Test (increase by 7%) Lead Test (Decrease by 6%) 12200 + (12200 x 7%) =12200 + 854 = 13054 test 16000 - (16000 x 6%) =16000 - 960 = 15040 test Revenue = Selling Price x Units Sold Canseco should lower the price of a lead test in 2018 if its goal is to maximize sales revenue.