The following is the Income Statement of Rathkeale Ltd for the year ended 31st December 2020.

000 000

Sales (58,000 units) 1,160

Direct materials 406

Direct wages 232

Variable production overheads 58

Fixed production overheads 200

Fixed distribution overheads 75

Fixed administration overheads 170

Fixed selling overheads 75

1,216

(Loss) (56)

The companys loss of 56,000 at the end of 2020 has confused some of the directors who feel they are working very hard in this company but their efforts are not reflected in the companys performance. The Managing director has asked for some suggestions to try to improve the situation.

The following suggestions were put forward:

(a) Increase the selling price by 17% per unit and this will be expected to decrease sales volume by 9%.

(b) Reduce the selling price by 15% per unit, which is expected to lead to an increase in sales volume by 30%.

(c) Increase direct wages rates from 4 per hour to 5, as part of an overall package to increase productivity. This is expected to lead to an increase in sales by 20% but advertising costs would also increase by 60,000.

You are required to:

Evaluate each of the above suggestions (a) to (c) and comment accordingly. Each suggestion is independent