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Martin & Sons, a small door manufacturer, sold 4,600 white six-panel doors for $130 each and 2,400 unfinished six-panel doors for $100 each. Mr. Martin feels that because home-owners are doing more themselves and the economy is down, that they may see an increase of 15% in sales of unfinished six-panel doors in 2012 and a corresponding 10% increase in sales of white six-panel doors. He wonders if he lowered the price of the white six-panel doors to $120 each, that he may only see an 8% decline in sales of white six-panel doors and the corresponding increase in unfinished six-panel doors.
Problem 1. Prepare a 2012 sales budget assuming that Martin & Sons holds prices at the current level and sales quantity remains at the 2011 level.
Problem 2. Prepare a 2012 sales budget assuming that Martin & Sons holds prices at the current level and the decrease in white six-panel doors is realized as is the increase in unfinished six-panel doors.
Problem 3. Prepare a 2012 sales budget assuming that Martin & Sons lowers the price of six-panel doors to $120 each and the decline in sales is as anticipated.
Problem 4. Should Martin & Sons lower the price of the white six-panel doors to $120 each?
Problem 5. Suppose the cost to produce the white six-panel door is $80 and the unfinished six-panel door is $45, at what volume level of each of the doors does the company make the most amount of profit? Show your work!
Problem 6. Theorize the following:
a. What changes could the company make if they wanted to maintain a cash balance of $650,000, rather than $350,000?
b. What is the company's cost of borrowing was 6%, rather than 12%? What recommendations would you make to them?
c. What is the company experienced 10% of bad debt per year? What would be the impact on their ending cash?