Yorks ltd (case study)

York Ltd has been running a small business of manufacturing and selling one type of electric heaters.

Currently, each heater is sold for 40. Variable cost per unit is 16. Total fixed cost for the business is 200,000. Total sales is 10,000 heaters.

The business wishes to increase their sales. There are three possible options:

1. Expansion - This option is an expansion of the operation, which allows the volume of sales to be increased to 15,000, but additional fixed costs 60,000 are incurred. Selling price and variable cost will remain same.

2. Cheaper product - This is an adaptation of the product, making a cheaper alternative product for the market. The selling price would drop to 30; the variable costs are 11. The number of customers will increase to 16,000. Fixed costs will remain same.

3. Better product - This is an adaptation of the product, making a superior quality product for the market. The selling price would increase to 48 and the variable costs would increase to 24. The number of customers would decrease to 12,000 and fixed costs would remain same.

Question A: Use What-if tools available in Excel to create CVP analysis for current situation and all alternatives available. Use the following proforma.

Question B:Using the case study, Yorks ltd, considered in week 3 and your reading and research advise management which option should be selected.