Alternative course of action 

(i) Produce enough units of X in the next 13 weeks to use up existing inventories of direct materials. 

(ii) Start sales of Y as soon as possible, and offer customers the choice between X and Y. Since X is an inferior compound, it would have to be sold at a lower price than Y.  

Merits of this course of action 

(i) The workforce would be usefully employed for the next 13 weeks and then production of Y would begin at once. Although redundancies would still seem inevitable, the company would be creating as much work as it could for its employees. 

(ii) AB's customers would be made aware of the superiority of Y over X in terms of price, and of AB's commitment to the new compound. AB's marketing approach would be both 'honest' and would also give customers an attractive choice of buying the superior Y or, for a time, an inferior X but at a lower price. This might well enhance AB's marketing success.  

Demerits of this course of action 

(i) It is unlikely to be a profit-maximising option, because selling X at a discount price would reduce profitability. 

(ii) Customers who get a discount on X might demand similar discounts on Y. 

(iii) Some customers might query the technical differences between X and Y, and question why AB has been selling X at such a high price in the past – this might lead to some customer relations difficulties. 

(iv) AB must decide when to reduce the price of X, given that Y cannot be made for 20 weeks. The timing of the price reduction might create some difficulties with customers who buy X just before the price is reduced.