Castelo Branco Lda is a manufacturer of video-conferencing products. Regular units are manufactured. 1 answer below »

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Castelo Branco Lda is a manufacturer of video-conferencing products. Regular units are manufactured to meet marketing projections, and specialised units are made after an order is received. Maintaining the video-conferencing equipment is an important area of customer satisfaction. With the recent downturn in the computer industry, the video-conferencing equipment segment has suffered, leading to a decline in Castelo Branco s financial performance. The following profit and loss account shows results for the year 2007: Castelo Branco s management team is in the process of preparing the 2008 budget and is studying the following information: a. Selling prices of equipment are expected to increase by 10% as the economic recovery begins. The selling price of each maintenance contract is unchanged from 2008. b. Equipment sales in units are expected to increase by 6%, with a corresponding 6% growth in units of maintenance contracts. c. The cost of each unit sold is expected to increase by 3% to pay for the necessary technology and quality improvements. d. Marketing costs are expected to increase by €250 000, but administration costs are expected to be held at 2007 levels. e. Distribution costs vary in proportion to the number of units of equipment sold. f. Two maintenance technicians are to be added at a total cost of €130 000, which covers wages and related travel costs. The objective is to improve customer service and shorten response time. g. There is no opening or

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