Question

Howell & Sons, a small environmental testing firm, performed 12,400 radon tests for $320 each and 15,800 lead tests for $200 each. Because newer homes are being build with lead free pipes, lead testing volume is expected to decrease by 12% next year. However, awareness of radon related health hazards is expected to result in a 5% increase in radon test volume each hear in the near future. Jim Howell feels that if he lowers his price test to $180 per test, he will have to face only a 6% decline in lead test sales in 2018.

Prepare a 2018 sales budget for Howell & Sons assuming that Howell holds prices at 2017 levels.

Prepare a 2018 Dale's budget for Howell & Sons assuming that Howell lowers the price of a lead test to $180. Should Howell lower the price of a lead test in 2018 if the company's goal is to maximize sales revenue?

Answer 1

Answer
1.) Sales budget with 2017 prices :-
Sales budget
For the year ended December 31, 2018
	Selling price	Units sold	Total Revenue
Radon tests	$                  320	12,400 x 1.05 = 13020	$           4,166,400
Lead tests	$                  200	15,800 x 0.88 = 13904	$           2,780,800
Total			$           6,947,200
2.) Sales budget with lower price :-
Sales budget
For the year ended December 31, 2018
	Selling price	Units sold	Total Revenue
Radon tests	$             320.00	13,020	$           4,166,400
Lead tests	$             150.00	15,000 x 0.94 = 14,100	$           2,115,000
Total			$           6,281,400