Question

In 2017, Howell & Sons, a small environmental-testing firm, performed 11,400 radon tests for $290 each and 16,600 lead tests for $220 each. Because newer homes are being built with lead-free pipes, lead-testing volume is expected to decrease by 13% next year. However, awareness of radon-related health hazards is expected to result in a 5% increase in radon-test volume each year in the near future. Jim Howell feels that if he lowers his price for lead testing to $200 per test, he will have to face only a 7% decline in lead-test sales in 2018. Read the requirements Requirement 1. Prepare the sales budget for Howell & Sons assuming that prices are held at 2017 levels. Sales Budget For the Year Ended December 31, 2018 Total revenues Radon tests i Requirements Lead tests Total Requirement 2. Prepare the sales budget assuming that Howell lowers the price of a lead test to $200. Sales Budget For the Year Ended December 31, 2018 1. Prepare a 2018 sales budget for Howell & Sons assuming that Howell holds prices at 2017 levels. 2. Prepare a 2018 sales budget for Howell & Sons assuming that Howell lowers the price of a lead test to $200. Should Howell lower the price of a lead test in 2018 if the company's goal is to maximize sales revenue? Total revenues Radon tests Print Done Lead tests Total Howell V lower the price of a lead test in 2018 if its goal is to maximize sales revenue.

Answer 1

Reduction in lead tests by 13% Lead tests budget 2,158 (16,600 * 13%) 14,442 (16,600 - 2,158) Increase in radon tests by 5% Radon tests budget 570 (11,400 * 5%) 11,970 (11,400 +570) Requirement 1: Sales Budget For the Year Ended December 31, 2018 Tests Price Radon tests 11,970 $ 290 Lead tests 14,442 $ 220 Total (refer test workings above) Total Revenue $ 3,471,300 $ 3,177,240 $ 6,648,540 Reduction in lead tests by 7% if price is held at $ 200 Lead tests budget 1,162 (16,600 * 7%) 15,438 (16,600 - 1,162) Requirement 2: Sales Budget For the Year Ended December 31, 2018 Tests Price 11,970 $ 15,438 $ Radon tests Lead tests Total 290 200 Total Revenue $ 3,471,300 $ 3,087,600 $ 6,558,900 Howell should not lower the price of a lead tests in 2018 if its goal is to maximize sales revenue.

Howell should not lower the price of a lead test in 2018 if its goal is to maximize sales revenue. Because its revenue would decrease from $ 6,648,540 to $ 6,558,900.