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Beginner |
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Energy Devices, purchases energy-saving devices in bulk, repackages them, and sells them to low-income consumers. Its products consist of shower nozzles that restrict the flow of water, thermostats with timers, and storm windows.
It is preparing its budget for the upcoming fiscal year. Preliminary budgeted figures, by product, are shown below:
Shower Nozzles Thermostats Storm Windows Total
Number of items 8 00 200 500 1,500
Price per item $10 $80 $100
Total revenue $8,000 $16,000 $50,000 $74,000
Purchase cost per item 8 70 95
Total purchase costs 6,400 14,000 47,500 67,900
Allocated fixed expenses
(includes all labor) 27,040 6,760 16,900 50,700
Total costs $33,440 $20,760 $64,400 $118,600
Profit (loss) $(25,440) $(4,760) $(14,400) $ (44,600)
Assignment
1. What is breakeven for the year? What concerns, if any, do you have about this breakeven figure?
2. Given that its preliminary budget shows a sizable loss, EA must consider ways to eliminate this loss. What budgetary options should management consider?
3. EA thinks it can increase the sales of its products by advertising in local newspapers, and has decided to spend $1,000 on advertising. To get the most out of its advertising dollar, it has decided to concentrate on one product only. Given financial concerns only, please discuss how it should decide which product to emphasize?
4. One of the managers of EA has suggested that, since the organization loses so much on shower nozzles, it should discontinue selling them. What advice would you give EA about this decision?
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