Identifying relevant information Kent Alford has just purchased a record store from a friend who is retiring. He prepared an inventory of the merchandise, showing the original and replace- ment cost and the original and current selling price of each category of recordings.

Alford examined the data and came to you with the following observations and questions:

a. Compact disc costs have increased faster than their prices. Perhaps this product should be deemphasized as profit margins appear to be decreasing.

b. 45 RPM record prices have dropped sharply. These records are now selling below original cost and should be dropped from the product line.

c. The cost of cassette tapes has increased but the selling price remained the same. Should this item be discontinued?

d. The price of long-play albums has declined by a smaller percentage than the decline in cost. This looks like a good item to sell. Should we buy more long-play albums?

e. What problems may occur if a product line is dropped?

REQUIRED Respond to each of Alford's observations and questions and discuss any observations of your own.

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Per Unit Original Repl. Original Current Quantity Cost Cost Price Price Compact discs. 8,000 $6.00 $9.00 $15.00 $17.00 45 RPM records 5,000 2.20 1.20 3.00 2.00 Cassette tapes..... 6,000 4.00 4.50 8.00 8.00 Long-play record albums 3,000 6.00 5.00 9.00 8.00