In 2015, McGrath & Sons, a small environmental-testing firm, performed 11,000 radon tests for $250 each and
Question:
In 2015, McGrath & Sons, a small environmental-testing firm, performed 11,000 radon tests for $250 each and 15,200 lead tests for $200 each. Because newer homes are being built with lead-free pipes, lead-testing volume is expected to decrease by 10% 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 McGrath feels that if he lowers his price for lead testing to $190 per test, he will have to face only a 5% decline in lead-test sales in 2016.
Required
1. Prepare a 2016 sales budget for McGrath & Sons assuming that McGrath holds prices at 2015 levels.
2. Prepare a 2016 sales budget for McGrath & Sons assuming that McGrath lowers the price of a lead test to $190. Should McGrath lower the price of a lead test in 2016 if its goal is to maximize sales revenue?
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