Bill French case solution

Bill French 1. What are the assumptions implicit in Bill French's determination of his company's break-even point? Bill has the following 3 assumptions: 1. One breake breakeven ven point point for company company and and whole whole products products 2. cons consta tant nt pro produ duct ct mix mix 3. no chang change e on xed xed costs costs for the next next year year if prod produc uctio tion n rate rate is changes.

2. On the basis of French's revised information !hat does ne"t year look like? !ales "olume )nit !ales *rice

#$$re$ate 1#$%&#&&& + .( %

!ales -evenue  otal  otal "ariable "ariable /ost /ontribution 0argin

12#1+&#&&& 3.3( 3 .% +

 otal  otal "ariable "ariable /ost

%#(2%#&&&

ixed /osts 3#+(&#&&& a. What is the break-even point?

# '&&#&&& 1& '#&&&#&& & $.%& 2.%& 3#&&&#&& & (+&#&&&

B ' & & #& & & ( 3#+&&#&& & 3.$% % .2 % 1#%&&#&& & 1#%+&#&& &

% (%&#&&& '.,& '#%+&#&& & 1.%& 3.3& 1#'2%#&& & 1#1$&#&& &

/ontribution margin per unit  !elling price  "ariable cost per unit /ontribution margin per unit  +.(%43.3( /ontribution margin per unit  3.%+ Breakeven number of units  ixed ixed costs 5 /ontribution margin per unit Breakeven number of units  3#+(&#&&& 5 3.%+ Breakeven number of units  1#&3+#%1+

b. What level of operations must be achieved to pay the e"tra dividend i$norin$ union demands? Opera perati ting ng 6ncom ncome e 7fter  axes  axes )nit !ales *rice )nit "ariable /ost )nit /o /ontribution 0a 0argin Opera Operati ting ng 6nco 6ncome me befor before e taxes ixed /osts

+&&#&&& +.(% 3.3( 3.%+ 1#2&&#&&& 3#+(&#&&&

8umber of units  9 ixed /ost  Operating 6ncome ; 5 /ontribution 8umber of units  '#,(&#&&& 5 3.%+ & 1#3$3#%(%

c. What level level of operat operation ions s must must be achiev achieved ed demands

to meet union union

i$norin$

bonus

dividends? Oper Operat atin ing g 6nco 6ncome me afte afterr taxes ' % & #& & & )nit !ales *rice + .( % )nit "ariable /ost 3 .$ 3 )nit /ontribution 0argin 3 .2 2 Operat Operating ing 6ncome 6ncome before before taxes ( & & #& & & ixed /osts 3#+(&#&&&  otal  otal '#%(&#&&& 8umber of units  '#%(&#&&& 5 3.22 & 1#'3'#3

%$d. What level of of operations must must be achieved achieved to meet both union union demands  bonus dividends? Operating 6ncome after taxes )nit !ales *rice )nit "ariable /ost )nit /ontribution 0argin Operating 6ncome before taxes ixed /osts  otal  otal 8umber of units  '#,(&#&&& 5 3.22 & 1#%2,#12%

+&&#&& & + .( % 3 .$ 3 3 .2 2 1#2&&#& && 3#+(&#& && '#,(&#& &&

(. %an the breakeven breakeven analysis help help the company company decide !hether to alter the e"istin$ product emphasis? What can the company a)ord

to

invest

for

additional

*%+

capacity?

Breakeven analysis can help the company to decide whether to alter the existing product emphasis. /ompany can a
,roduct % !ales "olume )nit !ales *rice )nit !ales -evenue )nit "ariable /ost  otal  otal "ariable "ariable /ost /ontribution ixed /osts 7
(%&#&&& '.,& '#%+&#&&& 1.%& 1#'2%#&&& 3#13%#&&& 1#1$&#&&& 1#(+%#&&&

. %alculate each of the three products break even points usin$ the data. Why is the sum of these three volumes not e/ual to the 1100000

units

a$$re$ate

breakeven

volume?

Because each products unit contribution margin di
#$$re$ate 1#%&&#&&& $ .2 & 1&#,&&#&&& ' .% &

!ales "olume )nit !ales *rice !ales -evenue "ariable /ost /ontribution 0ar. 2 .$ &  otal  otal "ariable /ost +#$%&#&&& ixed /osts 2#($&#&&& Breakeven )nits 1#1&&#&&&

# + && && && 1& +#&&&#&&& $.%&

B ' & && && & ( 3 +& && && & 3 .$ %

% % & & #& & & 2 .' & 1#2&&#&&& 1 .% &

2.%&

% .2 %

& .( &

'#%&&#&&& (+&#&&& 3,'#&&&

1#%&&#&&& 1#%+&#&&& 2 ( $ #1 ' 3

$ % & #& & & ' % & #& & & % & & #& & &

. s this type of analysis of any value? For !hat can it be used?  his type of analysis is valuable for deciding product product emphasis# unit prices# etc..