In 2013, McGrath & Sons, a small environmental-testing firm, performed 11,000 radon tests for $250 each and 15,200 lead tests for $200 each. Because newer homes are being built with lead-free pipes, lead-testing volume is expected to decrease by 10% next year. However, awareness of radon-related health hazards is expected to result in a 5% increase in radon-test volume each year in the near future. Jim McGrath feels that if he lowers his price for lead testing to $190 per test, he will have to face only a 5% decline in lead-test sales in 2014.
1. Prepare a 2014 sales budget for McGrath & Sons assuming that McGrath holds prices at 2013 levels.
2. Prepare a 2014 sales budget for McGrath & Sons assuming that McGrath lowers the price of a lead test to $190. Should McGrath lower the price of a lead test in 2014 if its goal is to maximize sales revenue?