Fudge Ltd operates at three factory sites producing a closely related product range. The 20X4 budget for Fudge Ltd’s operations is as follows:
Croydon Luton Southend
£000 £000 £000
Variable 475 2,200 1,000
Fixed (site) 375 1,300 650
Fixed (central) 50 200 100
Sales 1,000 4,000 2,000
Profit 100 300 250
The lease of the Croydon site expires at the end of 20X4. Four alternative options have been identified for the 20X5 operations:
1. Renew the Croydon site lease at an additional annual rental of £50,000.
2. Shut the Croydon site and franchise Croydon production to another manufacturer at a 1.5 per cent commission on sales.
3. Shut the Croydon site and switch production to Luton; this would involve an additional £250,000 per year fixed costs at Luton and additional transport costs on production transferred amounting to 7.5 per cent of sales.
4. Shut down the Croydon site and switch production to Southend; this would involve additional fixed costs of £200,000 per year at Southend and additional transport costs on production transferred amounting to 10 per cent of sales.
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