Puzzled Limited would like to increase its sales during the year to 3l May 2018. 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 2017, the company sold 20,000 units. The cost details were as follows: 

These cost relationships are expected to hold in 2018. 

Required:

State which option you would recommend and why. 

Transcribed Image Text:

Sales Variable costs Contribution Fixed costs Profit L000 200 150 50 40 10