Question

In 2020, Alderman & Sons, a small environmental-testing firm, performed 10,800 radon tests for $300 each and 15,200 lead tests for $230 each. Because newer homes are being built with lead-free pipes, lead-testing volume is expected to decrease by 12% 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 Alderman feels that if he lowers his price for lead testing to $210 per test, he will have to face only a 5% decline in lead-test sales in 2021. Read the requirements. Requirement 1. Prepare the sales budget for Alderman & Sons assuming that prices

Answer 1

To prepare the sales budget for Alderman & Sons, we calculate the projected sales revenue for radon tests and lead tests in 2021. The projected sales revenue for radon tests is $3,468,800, and for lead tests is $3,321,200, resulting in a combined total of $6,790,000.

Step-by-step explanation:

To prepare the sales budget for Alderman & Sons, we need to calculate the projected sales of radon tests and lead tests for 2021. In 2020, the company performed 10,800 radon tests at $300 each, resulting in a total sales revenue of $3,240,000. They also performed 15,200 lead tests at $230 each, resulting in a total sales revenue of $3,496,000.

For radon tests, we expect a 7% increase in volume next year. So, the projected sales revenue for radon tests in 2021 would be $3,240,000 + 7% * $3,240,000 = $3,468,800.

For lead tests, if the price is reduced to $210 per test and there is a 5% decline in sales, the projected sales revenue for lead tests in 2021 would be $3,496,000 - 5% * $3,496,000 = $3,321,200.

Therefore, the total projected sales revenue for Alderman & Sons in 2021 would be $3,468,800 for radon tests and $3,321,200 for lead tests, resulting in a combined total of $6,790,000.