Question: The summarised profit and loss statement for Exewye pic for the last year is as follows:
At a recent board meeting, the directors discussed the year's results, following wh ich the chairman asked for suggestions to improve the situation. You are required, as management accountant, to evaluate the following alternative proposals and to comment briefly on each:
(a) Pay salesmen a commission of 10% of sales and thus increase sales to achieve break-even point.
(b) Reduce selling price by 10% which it is estimated would increase sales volume by 30%.
(c) Increase direct wage rates from £4 to £5 per hour, as part of a productivity/ pay deal. It is hoped that this would increase production and sales by 20%, but advertising costs would increase by £50,000.
(d) Increase sales by additional advertising of £300,000, with an increased selling price of 20%, setting a profit margin of 10%.