Question

Technology of the Past (TOP) produces old-fashioned simple corkscrews. Last year was not a good year for sales but TOP expects the market to pick up this year. Last year's income statement showed
Sales revenues ($4 per corkscrew) .... $40,000
Variable cost ($3 per corkscrew) .... 30,000
Contribution margin .......... 10,000
Fixed cost .............. 6,000
Operating income .......... $ 4,000
To take advantage of the anticipated growth in the market, TOP is considering various courses of action:
1. Do nothing. If TOP does nothing, it expects sales to increase by 10%.
2. Spend $2,000 on a new advertising campaign that is expected to increase sales by 50%.
3. Raise the price of the corkscrew to $5. This is expected to decrease sales quantities by 20%.
4. Redesign the classic corkscrew and increase the selling price to $6 while increasing the variable costs by $1 per unit. The sales level is not expected to change from last year.
REQUIRED
Evaluate each of the alternatives considered by TOP. What should TOP do?


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  • CreatedJuly 31, 2015
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