Alberta Gauge Company, Ltd., a small manufacturing company in Calgary, Alberta, manufactures three types of electrical gauges used in a variety of machinery. For many years the company has been profitable and has operated at capacity. However, in the last two years, prices on all gauges were reduced and selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter results for the current year, which follow, typify recent experience.

ALBERTA GAUGE COMPANY, LTD.

Income Statement

Second Quarter

(in thousands)

	Q Gauge	E Gauge	R Gauge	Total
Sales	$1600	$900	$900	$3400
Cost of Goods Sold	$1048	$770	$50	$2768
Gross Margin	$552	$130	$-50	$632
Selling and Admin exp	$370	$185	$135	$690
Income before taxes	$182	$-55	$-185	$-58

Alice Carlo, the company