Crawford sells three types of games to national toy companies. These games are known internally as Gamma, Omega, and Lambda. Recently the Gamma and Lambda lines have not shown acceptable profits. The most recent monthly results are:
Additional analysis reveals that $150 per month in facility-sustaining selling and administrative cost is charged to each product line. The remaining costs are assumed to vary directly with the number of units sold. Crawford is analyzing the following alternatives:
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- 1. Discontinue the Gamma line and increase advertising at a cost of $10 per month for the Lambda line. This is expected to increase Lambda sales by 20 percent.
- 2. Discontinue the Gamma and Lambda lines and focus solely on the Omega line. This is expected to increase Omega sales by 40 percent.
- 3. Increase promotion of both the Gamma and Lambda lines. The promotion will increase selling costs by $25 per month for each line. Unit sales of Gamma are expected to increase by 15 percent while unit sales of Lambda are expected to increase by 10 percent.
- 4. Do nothing. Leave the Gamma, Lambda, and Omega lines as they are.
Required:
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- A. Evaluate each alternative. Which alternative is best for Crawford Company?
- B. What additional factors should Crawford consider before making this decision?