detied thetiv Case 14-63 Alberta Gauge Company. Ltd., a small manufacturing company in Calgary. Alberta, manufactures three Drop a Product tine types of electrical gauges used in a variety of machinery. For many years the company has been profit(L0 14-4, 14-5) able and has operated at capacity. However, in the last two years, prices on all gauges were reduced and Lhit cortribuition, Egaasgo. selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter 3900 results for the current year, which follow, typify recent experience. Alice Carlo, the company's president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions: - Discontinue the R-gauge line immediately. R-gauges would not be returned to the product line unless the problems with the gauge can be identified and resolved. - Increase quarterly sales promotiou by $100,000 on the Q-gauge product line in order to increase sales volume by 15 percent. for this line to $20,000 each qquarter. Iason Sperry, the ceetroller, swepesued a meec carcful study of the finascul rclaticenteps wo determine the possible effects on the company's operating results of the presidcri's proposod cocine of action. The president apreed and assigned JoAsn Brower, the assistant contmiller, to pecpure an asolysus. Brower has gathered the following information. - All three gauges are munufactured with common cquipinent and faciutick. - Tho selling and afiministrative expense is allocalod to the throe punger lines bused on avenge sales volumse over the past throe years. - Special selling expenses (primarily advertiving prometion, and shipping) are iactured for exch sauge as follkwx: - The anit manufacturing costs for the three pereducts are as follown: - The unit sales prices for the theee products are as follows detied thetiv Case 14-63 Alberta Gauge Company. Ltd., a small manufacturing company in Calgary. Alberta, manufactures three Drop a Product tine types of electrical gauges used in a variety of machinery. For many years the company has been profit(L0 14-4, 14-5) able and has operated at capacity. However, in the last two years, prices on all gauges were reduced and Lhit cortribuition, Egaasgo. selling expenses increased to meet competition and keep the plant operating at capacity. Second-quarter 3900 results for the current year, which follow, typify recent experience. Alice Carlo, the company's president, is concerned about the results of the pricing, selling, and production prices. After reviewing the second-quarter results, she asked her management staff to consider the following three suggestions: - Discontinue the R-gauge line immediately. R-gauges would not be returned to the product line unless the problems with the gauge can be identified and resolved. - Increase quarterly sales promotiou by $100,000 on the Q-gauge product line in order to increase sales volume by 15 percent. for this line to $20,000 each qquarter. Iason Sperry, the ceetroller, swepesued a meec carcful study of the finascul rclaticenteps wo determine the possible effects on the company's operating results of the presidcri's proposod cocine of action. The president apreed and assigned JoAsn Brower, the assistant contmiller, to pecpure an asolysus. Brower has gathered the following information. - All three gauges are munufactured with common cquipinent and faciutick. - Tho selling and afiministrative expense is allocalod to the throe punger lines bused on avenge sales volumse over the past throe years. - Special selling expenses (primarily advertiving prometion, and shipping) are iactured for exch sauge as follkwx: - The anit manufacturing costs for the three pereducts are as follown: - The unit sales prices for the theee products are as follows