Additional information

It another factory the company manutadures bookcases. The following infomation is available.

Selling price per unit $$55$

Materials per unit $,$$$10$

Dired labour per unit $,$$$21$

Fixed costs per month $,$$$54000$

Factory capacity per m onth $3800$ units

Recently demand for the product has fallen due to increased competition and the target pro fit of

$$12500$ per m onth has not been met.

The directors are considering the following options.

Option A:

$1$ Reduce the selling price of each bookcase by $$3$ per unit.

$2$ Introduce a sales commission of $5\%$ of the selling price.

$3$ It is expeded that demand will be $3800$ units.

Option B:

$4$ Change the design to im prove quality resulting in an increase of $20\%$ in the material cost per

unit.

$5$ Labour hours per unit will increase by $10\%.$

$6$ The revised selling price of each bookcase will be $$59.$

$7$ Start an advertising campaign at a cost of $$24000$ per annum.

$8$ It is expeded that demand will be $3040$ units.

RE QUIRED

$($e$)$ Calculate the forecast pro fit per month for:

$($i$)$ Option A $(6$ marks$)$

$($ii$)$ Option $B(6$ marks$)$

$($f$)$ Recomm end which option the diredors should choose. Justify your ansmer. $(4$ marks$)$