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Bill French Case Study

This document discusses using break-even analysis to analyze the production of three products (A, B, C) for a firm. It provides the sales volumes, prices, variable costs, fixed costs, and contribution margins for each product. It then calculates the break-even point, profit, variable cost to sales ratio, unit contribution to sales ratio, and capacity utilization for each product and in aggregate. The benefits of break-even analysis for understanding the relationship between costs, output, and profit are also outlined.

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Cresente Siglos
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458 views3 pages

Bill French Case Study

This document discusses using break-even analysis to analyze the production of three products (A, B, C) for a firm. It provides the sales volumes, prices, variable costs, fixed costs, and contribution margins for each product. It then calculates the break-even point, profit, variable cost to sales ratio, unit contribution to sales ratio, and capacity utilization for each product and in aggregate. The benefits of break-even analysis for understanding the relationship between costs, output, and profit are also outlined.

Uploaded by

Cresente Siglos
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOC, PDF, TXT or read online on Scribd
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Cresente G.

Siglos
MBA 112-A
Case 16-3 Bill French
1. He has assumed that there is just one breakeven point or the !rm "b# taking
the average o the $ produ%ts&. He has also assumed that the sales mi' (ill
remain %onstant. Sin%e the %apa%it# is being e'panded to in%rease produ%tion o
)rodu%t C* it %ould be assumed that this in%rease should be allo%ated to this
produ%t. )rodu%tion o )rodu%t A is to be s%aled do(n* but its level o !'ed %osts
has been assumed to be un%hanged.
2. a. Break-even units+ ,i'ed Cost- "Selling pri%e . /ariable Cost )er 0nit&
Break-even units+ 1$*234*444- "2.356 - $.72& + 1*4$7*262 units.
8he break even unit or the aggregate production is 14$7262 units.
b. 8o pa# the e'tra dividend o 749 and to retain the pro!t o 1174444 (e need
to have the pro!t ater ta'es as 1244444. As hal o the revenues go to the
government as ta'es thereore the total revenues beore ta' dedu%tion should be
e:ual to 11244444.
;perating in%ome ater ta'es
"1574444 dividend < 1174444
pro!ts& 1 244444
Selling pri%e 12.37
/ariable %ost per unit 1$.$3
Contribution margin per unit 1$.72
;perating in%ome beore ta'
"assuming 749 o the revenue goes
as ta' to the government& 1 1244444
8otal ,i'ed Cost 1$234444
=o o units re:uired to be produ%ed
+ ",C < ;perating
in%ome&-Contribution 1$>$737
%.
;perating in%ome ater ta'es
"1574444 dividend < 1174444
pro!ts& 1574444
Selling )ri%e 12.37
/ariable %ost per unit 1$.>$
Contribution margin per unit 1$.2
;perating in%ome beore ta'
"assuming 749 o the revenue goes
as ta' to the government& 1344444
8otal ,i'ed Cost 1$234444
=o o units re:uired to be produ%ed
+ ",C < ;perating
in%ome&-Contribution 15$5$>7
d.
;perating in%ome ater ta'es
"1574444 dividend < 1174444
pro!ts& 1244444
Contribution margin per unit 1$.2
;perating in%ome beore ta'
"assuming 749 o the revenue goes
as ta' to the government& 11244444
8otal ,i'ed Cost 1$234444
=o o units re:uired to be produ%ed
+ ",C < ;perating
in%ome&-Contribution 1726127
$. Break even anal#sis %an be used to de%ide (hether to alter the e'isting
produ%t emphasis or not. ,or e'ample in this %ase* i (e reer last #ear?s data* (e
%an see that the produ%t C is not e%onomi%all# easible to manua%ture at 12.54 -
unit. ,ollo(ing table gives the anal#sis or %he%king (hether the %ompan# %an
a@ord to invest in additional ACB %apa%it#.
Total number of units
produced 374444
Sale price 15.6
Sale revenues
157244
44
Variable cost 11.74
Total variable cost
115274
44
Contribution
1$1$74
44
Fied cost 111>44
44
!nvestment the
compan" can
a#ord
113274
44
5.

$ggreg
ate %$& %B& %C&
Sales at ull %apa%it#
"units& 2444444
A%tual Sales /olume
"units& 1744444 244444 544444 744444
0nit Sales )ri%e 1>.2 114 13 12.5

Sales Cevenue
1146444
44
124444
44
1$2444
44
112444
44
/ariable Cost per unit 15.7 1>.7 1$.>7 11.7
Contribution margin per
unit 12.> 12.7 17.27 14.3

8otal /ariable Costs
12>7444
4
157444
44
117444
44
1>7444
4
,i'ed Costs
123>444
4
132444
4
117244
44
157444
4

)ro!t
1146444
4
175444
4
175444
4 4
CatiosD
/ariable %ost to sales 4.227 4.>7
4.5122
2> 4.227
0nit %ontribution to
sales 4.$>7 4.27
4.76$$
$$ 4.$>7
0tiliEation o %apa%it# >7.449 $49 769 $>.749
Break Fven )oint "units& 1144444 $65444 23>15$ 744444
'. 8he ollo(ing are the bene!ts o the break even anal#sisD
8he break even anal#sis helps understand and ormulate the relationship
bet(een %osts "!'ed and variable&* output and pro!t. 8he te%hni:ue %an be used
to set sales targets and-or pri%es to generate target pro!ts. Gn a (ide produ%t
range* the anal#sis helps to !nd out (hi%h produ%ts are perorming (ell and
(hi%h are leading to losses .Gt is also versatile enough to in%lude items like
donations* (age in%reases* et%. that dire%tl# or indire%tl# a@e%t %osts

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