The summarized profit and loss statement for Exewye plc for the last year is as follows:

At a recent board meeting the directors discussed the year’s results, following which 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 per cent of sales and thus increase sales to achieve break-even point.

(b) Reduce selling price by 10 per cent, which it is estimated would increase sales volume by 30 per cent.

(c) Increase direct wage rates by 25 per cent per hour, as part of a productivity/pay deal. It is hoped that this would increase production and sales by 20 per cent, but advertising costs would increase by £50,000.

(d) Increase sales by additional advertising of £300,000, with an increased selling price of 20 per cent, setting a profit margin of 10 per cent.

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(000) (000) Sale (50,000 units) Direct materials 1,000 350 Direct wages 200 Fixed production overhead 200 Variable production overhead 50 Administration overhead 180 Selling and distribution overhead 120 1,100 Profit/(loss) (100)