BILL FRENCH CASE Question 1: What are the assumptions implicit in Bill French’s determination of his company’s break-even point?
The following assumptions are implicit in Bill French’s determination:
• He has assumed that there is just one breakeven point for the firm (by taking the average of the 3 products)
• He has also assumed that the sales mix will remain constant
• He has also assumed that the sales mix will remain constant. Total revenue and total expenses behave in a linear manner over the relevant range
• Since the capacity is being expanded to increase production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of
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What can the company afford to invest for additional “C” capacity?
Answer:
Break even analysis can be used to decide whether to alter the existing product emphasis or not. For example in this case, if we refer last year’s data, we can see that the product C is not economically feasible to manufacture at $2.40 / unit. Following table gives the analysis for checking whether the company can afford to invest in additional “C” capacity.
Total number of units produced 950000
Sale price $4.8
Sale revenues $4560000
Variable cost $1.50
Total variable cost $1425000
Contribution $3135000
Fixed cost $1170000
Investment the company can afford $1965000
Question 4: Calculate each of the three products’ break even points using the data. Why is the sum of these three volumes not equal to the 1,100,000 unit’s aggregate break-even volume?
Answer:
Aggregate “A” “B” “C”
Sales at full capacity (units) 2000000
Actual Sales Volume (units) 1500000 600000 400000 500000
Unit Sales Price $7.2 $10 $9 $2.4 Sales Revenue $10800000 $6000000 $3600000 $1200000
Variable Cost per unit $4.5 $7.5 $3.75 $1.5
Contribution margin per unit $2.7 $2.5 $5.25 $0.9 Total Variable Costs $6750000 $4500000 $1500000 $750000
Fixed Costs $2970000 $960000 $1560000 $450000 Profit $1080000 $540000 $540000 0
Ratios:
Variable cost
constant over time. (Hint: You must consider likely changes in revenues and costs due to
Breakeven Analysis for Product Tylenol Approach 1 - Same price as Tylenol Approach 2a - Cheaper than Tylenol Approach 2b - Cheaper w/lowered trade cost $ $ $ $ Unit Cost (Variable Cost) 0.60 0.60 0.60 0.60 Trade Cost (Selling Price to Retailers) $ 1.69 $ 1.69 $ 1.05 $ 0.70 Fixed Cost (Advertising) 2,000,000 6,000,000 6,000,000 6,000,000 Break-Even Quantity [Fixed Cost/(Trade Cost-Unit Cost)] 1,834,862 5,504,587 13,333,333 60,000,000 Contribution Margin (Unit) 64% 64% 43% 14%
In order to calculate the breakeven point, we use the following equation and budget data:
Moreover, break-even point is useful, simply why firm are making profit. Once the break-even units or break-even revenue is achieved, then the process is openly acceptable. Finally, assumptions, such as sales units are the only cause for cost and revenue changes, linear graph line can be shown when revenue and costs are used, and then single product or service would be analyzed.
The oral presentations on Michel Tremblay’s Les Belles Sœurs allowed me to broaden my comprehension and knowledge of the social and cultural conditions in Montreal in the 1960s. The presentations related to the religious crisis and the Quiet Revolution developed my understanding of the play and caused me to make links between what was happening in the real world at the time in comparison to what occurred in the play.
Oliver had found the prize in the cake and it was a golden crown. Then he was talking with his friend Charlie from New Jersey about the differences of their school's. For Oliver French school was very hard and he had to do many projects. One project in particular that he hated was the one for his rhetoric class that it was important for the French but confusing for Oliver. Before Oliver was going to sit down and do his paper he had a something drink and decided to practice shadow puppets in the kitchen. In the kitchen there is a window that you can see the courtyard of the building. After dinner, Oliver's mom lets down the blinders that she bought for the window there blue with white. That day in the night Oliver kept the blinds down and turned
* What is the role provided by break-even point and how would you calculate this point?
In looking at the next possibility where we can use the break even analysis, it would involve the question of how to manufacture a product, in terms of the nature of operations and how it will affect fixed costs. In this instance, we as a company may have a good idea on the quantity expect, the likely selling price, and the variable costs involved, but be uncertain about how to structure the new operation. For example, if the volume expected to be 15,000 units, at a selling price of $5 and variable costs of $3, the break even equation tells us that the fixed costs cannot be greater
The other assumptions of the management are that the selling price for goods will be the same in 2007 and that top line growth will be 3% assuming no acquisition in 2007. If in 2007, the
To overcome the problem regarding to the plant has performed so poorly in the three consecutive months, DANSHUI have to consider for strategic concept to enable the problems can be identified and resolved amicably. To achieve this, DANSHUI can consider the breakeven analysis to determine when a business will be able to cover all its expenses and begin to make a profit. This break-even analysis will shows the amount of revenue that need to be bring in to cover the expenses before a dime of profit have been made. For example, if DANSHUI can attain and surpass their break-even point, which mean that if they can easily bring in more than the amount of sales revenue they need to meet their expenses, then their business stands a good chance of making money. To perform a break-even analysis, DANSHUI have to make educated guesses about their expenses and revenues. Although DANSHUI did not have a crystal ball, they should do some serious research including an analysis of their market so that they can determine their projected sales volume
3. Even though the company met is $500,000 sales budget for the month, the sales mix was different from the sales mix sold. This resulted in a decrease of net operating income.
Bill French picked up the phone and called his boss, Wes Davidson, controller of DuoProducts Corporation. “Wes, I’m all set for the meeting this afternoon. I’ve put together a set of break-even statements that should really make people sit up and take notice – and I think they’ll be able to understand them, too.” After a brief conversation, French concluded the call and turned to his charts for one last checkout before the meeting. French had been hired six months earlier as a staff accountant. He was directly responsible to Davidson and had been doing routine types of analytical work. French was a business school graduate and was considered by his associates to be quite capable and unusually
When looking at break-evens it is also helpful to look at fixed and variable costs. Fixed overhead is steady and can be factored in quite accurately. Variable costs are not as simple to calculate but in many industries variable costs follow certain percentages or ratios so they are easier to project. According to Tim Berry, the Break-even Analysis lets a manager determine what needs to be sold, monthly or annually, to cover the costs of doing business-the actual break-even point. The Break-even Analysis depends on three key assumptions:1.Average per-unit sales price (per-unit revenue: This is the price that you receive per unit of sales2.Average per-unit cost: This is the incremental cost, or variable cost, of each unit of sales. If you buy goods for resale, this is what you paid, on average, for the goods you sell. If you sell a service, this is what it costs you, per dollar of revenue or unit of service delivered, to deliver that service.
To identify the effect of breakeven point for multiple products and ascertain which product is as advantages.
Within this range, the accountant assumes variable cost per unit is the same and the total cost line is linear.