Notsure plc would like to increase its profitability for the year ending 30 September 20x6 and it has identified four available options. The board of directors has been unable to decide which course of action to take and has asked you, as an external financial consultant, to evaluate each of the possible options.

Information available

Here is an extract from the income statement for the year ending 30 September 20x5, which was based on 50 units being manufactured and sold

Sales34,400

Direct materials 12,200

Direct labour 3,700

Variable overheads4,700

Fixed overheads10,66031,260

Profit 3, 140

Options

1.Improve the product quality by increasing variable costs by 65 per unit.

2.Increase the selling price by 15%.

3.Incur additional TV advertising costs of 1,300.

4.Hire new equipment at an annual cost of 840. This would increase efficiency and reduce variable costs by 60 per unit.

Output

The output forecast for the four options is:

1.55 units

2.41 units

3.59 units

4.52 units.

Required:

Advise the board of directors on the recommended course of action.