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Energy Devices, Inc. (C)
Author(s):
Young, David W.
Functional Area(s):
   Management Accounting
Setting(s):
   For Profit
Difficulty Level: Beginner
Pages: 1
Teaching Note: Available. 
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First Page and the Assignment Questions:
Energy Devices, Inc. (EDI), purchases energy-saving devices in bulk, repackages them, and sells them to hardware stores in various locales.  Its products consist of shower nozzles that restrict the flow of water, thermostats with timers, and storm windows.

  It is preparing its budget for the upcoming fiscal year.  Preliminary budgeted figures, by product, are shown below:

    
                                                        Shower Nozzles    Thermostats     Storm Windows            Total
Number of items                                         800                        200                    500                    1,500
Price per item                                                $10                     $80                    $100
Total revenue                                            $8,000             $16,000            $50,000             $74,000
Purchase cost per item                                     8                         70                         95         
Total purchase costs                                  6,400                14,000                47,500               67,900
Allocated fixed expenses
(includes all labor)                                    27,040                6,760                16,900                50,700
Total costs                                                   $33,440         $20,760                $64,400        $118,600

Profit (loss)                                                 $(25,440)        $(4,760)             $(14,400)         $ (44,600)

Assignment

    What is breakeven for the year?  What concerns, if any, do you have about this breakeven figure?
    Given that its preliminary budget shows a sizable loss, EDI must consider ways to eliminate this loss.  What budgetary options should management consider?
    EDI thinks it can increase the sales of its products by advertising in local newspapers, and has decided to spend $1,000 on advertising. To get the most out of its advertising dollar, it has decided to concentrate on one product only. Given financial concerns only, please discuss how it should decide which product to emphasize?
    One of the managers of EDI has suggested that, since the company loses so much on shower nozzles, it should discontinue selling them.  What advice would you give EDI about this decision?