Carad pic manufactures a high quality car radio which sells for

£100. Its head office is located in the south and it operates three factories in the north, east and west, results for which are shown below.

Profit and loss statement year ended 31 December

Management is considering its strategy for next year, particularly in the light of the bad news that one of North factory's main customers (Exe pic, which takes 10,000 radios per annum) has gone into liquidation. A number of possible alternatives have been suggested and are shown below:

(a) Continue operations at East and West, but reduce output at North on the assumption that no market can be obtained to replace Exe pic

(b) Continue operations at East and West and operate North at its breakeven level of sales.

(c) Continue operations at all three factories and accept an offer from an overseas car manufacturer who is prepared to buy from North 10,000 radios per annum at a special price of £80.

(d) Continue operations at West as at present and transfer the remaining production requirements of North to East. See note below.

(e) Continue operations at East as at present and transfer the remaining production requirements of North to West. See note below.

You are required to:
Present your evaluation of the five proposals.

Transcribed Image Text:

East West North 000 000 000 000 000 000 Sales 16,000 12,000 5,000 Direct materials 3,840 2,880 1,200 Direct wages 1,760 1,200 450 Production overhead: variable 640 720 250 fixed 2,400 1,600 700