The Harvest Manufacturing Company produces only one product. Because of their perishable nature, stocks of all kinds are maintained at very low levels and can be safely ignored for budgeting purposes. The profit for the year just completed has been calculated as shown on page 214.

Next year: material prices are expected to rise 5%; labour rates and other variable manufacturing expenses are expected to rise by 10% but sales commissions will be the same percentage and fixed expenses will remain the same. Harvest is currently considering three alternative strategies for next year:
(1) Make no changes in either selling price or product design and hope to sell at least as many units as last year.
(2) Increase selling price by 10% and hope volume does not drop by more than 5%.
(3) Redesign the product and increase the selling price by 15% and hope to increase volume by 10%. Different material would be used costing 5%
less per pound (Ib) than LAST YEAR; however 8% more material per unit of output would be required. As the work would be less skilled, wage rates would be 4% less per hour than wage rates paid LAST YEAR, but 25% more labour hours per unit of output would be needed. To handle the increased volume, £4 000 would have to be spent on rent for additional accommodation.

Required:

(a) Calculate the budgeted profit under each of the three alternative strategies being considered by Harvest for next year. (15 marks)

(b) Briefly suggest any other factors that should be considered by Harvest in selecting its strategy for next year.

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000 Sales (2 000 units) Material Labour Other Variable Manufacturing Expenses 200 varying in proportion to output varying in proportion to output 40 60 469 varying in proportion to labour hours 30 Sales Commissions 2% of sales value Fixed Expenses 4 same irrespective of output 16 Total expenses 150 Profit 50