Question -
Wheels and All Company makes skateboards, roller skates and roller blades. Roller skates are not as popular as they used to be and the company is considering dropping this product. Wheels and All currently sells 10,000 sets of roller skates each year for $60 per set. Variable costs to manufacture the roller skates are $54 per set. Fixed costs of $75,000 can be avoided if Wheels and All do not produce roller skates. Analyse the following independent scenarios for Wheels and All.
(a) Prepare an analysis to determine whether or not the Company should discontinue the production of roller skates.
(b) Wheels and All can increase the sales volume to 14,000 sets of roller skates if they company is willing to spend an additional $5,000 on advertising during the year. Prepare an analysis to determine if Wheels and All should continue or discontinue the production of roller skates based on this new information.
(c) Management have decided that it would be better to lower the selling price in order to increase the volume of skates sold. It was noted that volume would increase by 1,000 sets for every $1 that the selling price was reduced. If management lowered the selling price by $2 per set, should the company continue to manufacture roller skates?