Puzzled Limited would like to increase its sales during the year to 3l May 2012. To do so, it has several mutually exclusive options open to it:

Reduce the selling price per unit by 15 per cent;

Improve the product resulting in an increase in the variable cost per unit of £1.30;

Spend £15,000 on an advertising campaign;

Improve factory efficiency by purchasing more machinery at a fixed extra annual cost of £22,500.

During the year to 31 May 2011, the company sold 20,000 units. The cost details were as follows:

£000

Sales ..............200

Variable costs ...........150

Contribution ........... 50

Fixed costs ........... 40

Profit .............. 10

These cost relationships are expected to hold in 2012.

Required:

State which option you would recommend and why.