Evaluation of the options available

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Introduction

There are a few options for S.B. Ltd to consider getting through difficult times. The five main options are firstly, to discontinue the Nottingham division and Leicester and Loughborough divisions could use their spare capacity to produce 60% of Nottingham’s 2010 output in addition to their own 2010 output, close the Nottingham division and outsource Nottingham’s 2010 output, to launch a major campaign for all 3 products to increase their sales, to introduce a transfer pricing system between the division and the head office to increase motivation among the staff in each division and rightsizing the organisation..

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Discontinuation

As seen Nottingham is not making growth, in response to market forces, the first option is to discontinue Nottingham division by selling its assets and settling its liabilities and shifting production from Nottingham to Leicester and Loughborough. The discontinuation decision is a decision when the division profitability highlights the potential of unprofitable (Drury, 2010, pp.91-92). In this option, assuming that Leicester and Loughborough have some spare capacity to produce 60% of Nottingham’s 2010 output on top of their own 2010 output. According to Drury (2010, p.92), discontinuing the Nottingham division could aid the company in eliminating cost of goods sold, and other variable costs in the division.

Leicester

Loughborough

Derby

Sales – Strawberry jam

280.00

Sales – Orange Marmalade

240.00

Sales – Raspberry jam (60%)

96.00

Total Sales

616.00

Cost of goods produced and sold

173.00

153.00

326.00

Gross Profit

290.00

Advertising costs

30.00

Distribution costs

50.00

Local administration expenses

30.00

30.00

60.00

Head Office Costs

150.00

Net Profit

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