Question

In 2017, Cole & Sons, a small environmental-testing firm, performed 11,400 radon tests for $250 each and 15,000 lead tests for $180 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 Cole feels that if he lowers his price for lead testing to $170 per test, he will have to face only a 4% decline in lead-test sales in 2018. Read the requirements. Requirement 1. Prepare the sales budget for Cole & Sons assuming that prices are held at 2017 levels. Sales Budget For the Year Ended December 31, 2018 Total revenues Radon tests Lead tests Requirements Total 1. Prepare a 2018 sales budget for Cole & Sons assuming that Cole holds prices at 2017 levels. 2. Prepare a 2018 sales budget for Cole & Sons assuming that Cole lowers the price of a lead test to $170. Should Cole lower the price of a lead test in 2018 if the company's goal is to maximize sales revenue? Print Done Choose from any list or enter any number in the input fields and then click Check Answer.

Answer 1

1.) Sales budget with 2017 prices :-

Sales budget

For the year ended December 31, 2018

	Selling price	Units sold	Total Revenue
Radon tests	$250	11,400 x 1.07 = 12,198	$3,049,500
Lead tests	$180	15,000 x 0.85 = 12,750	$2,295,000
Total			$5,344,500

2.) Sales budget with lower price :-

Sales budget

For the year ended December 31, 2018

	Selling price	Units sold	Total Revenue
Radon tests	$250	12,198	$3,049,500
Lead tests	$170	15,000 x 0.96 = 14,400	$2,448,000
Total			$5,497,500

If company's goal is to maximize sales revenue them the selling price of lead tests should be lower.