Columbia Inc, provides golf course design consulting. Its current consulting rate is $175 per hour. Variable costs are estimated at $96 per hour, total fixed costs are expected to be $2,000,000. Annual sales volume is projected to be 40,000 hours. Due to the growth of an aggressive competitor, Columbia management is considering lowering its prices by 5%, which would enable the company to maintain its current sales volume. If Columbia leaves its prices at the current rate, it can expect its sales volume to drop by 7%. Which choice is the better alternative and why?
Columbia Inc, provides golf course design consulting. Its current consulting rate is $175 per hour. Variable costs are estimated at $96 per hour, total fixed costs are expected to be $2,000,000. Annual sales volume is projected to be 40,000 hours. Due to the growth of an aggressive competitor, Columbia management is considering lowering its prices by 5%, which would enable the company to maintain its current sales volume. If Columbia leaves its prices at the current rate, it can expect its sales volume to drop by 7%. Which choice is the better alternative and why?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Columbia Inc, provides golf course design consulting. Its current consulting rate is $175 per hour. Variable costs are estimated at $96 per hour, total fixed costs are expected to be $2,000,000. Annual sales volume is projected to be 40,000 hours. Due to the growth of an aggressive competitor, Columbia management is considering lowering its prices by 5%, which would enable the company to maintain its current sales volume. If Columbia leaves its prices at the current rate, it can expect its sales volume to drop by 7%. Which choice is the better alternative and why?
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