A Plant capacity past years level of operations average unit selling price total fixed costs average variable

unit cost A Sales at Full capacity actual sales volume unit sale price Total sales revenue Variable cost per unit Total variable cost Fixed costs Net profit Ratios: Variable Cost to sales Variable income to sales Utilization of capacity(%) 600000 1.67 1000000 1.25 750000 170000 80000 0.75 0.25 30% Revised Plan A Sales at Full capacity actual sales volume unit sale price Total sales revenue Variable cost per unit Total variable cost Fixed costs Net profit Ratios: Variable Cost to sales Variable income to sales Utilization of capacity(%) Contribution Margin BEP quantity BEP revenues 2000000 1500000 1.2 520000 0.75 B 400000 1.5 600000 0.625 250000 275000 75000 0.42 0.58 20%

B

C

C 500000 0.4 200000 0.25 125000 75000 0 0.63 0.37 25%

Total 2000000 1500000 1.2 1800000 0.75 1125000 520000 155000 0.63 0.37 75%

B

C

Total 2000000 1750000 1.158857143 2028000 0.564285714 987500 640000 400500 0.486932939 0.513067061 88% 0.59 1076405.574 1247400.288

400000 400000 950000 1.67 1.5 0.8 668000 600000 760000 1.25 0.625 0.25 500000 250000 237500 146285.7143 146285.7143 347428.57 21714 203714.2857 175071.43 0.748502994 0.416666667 0.3125 0.251497006 0.583333333 0.6875 20% 20% 48% 0.42 0.88 0.55 348299.3197 167183.6735 631688.31

Dividend cost = 75000 Cost to be held back for business = 25000 Target operating income = 200000 Effect of Union demands : Total Variable Costs= 1086250 so Variable costs per Unit =0.62

His Break even point is based on the average sales of three products i.56) 840000/0.814 BEP Quantity considering Union Demands and Ignoring Dividends= = BEP Quantity considering both Union Demands and Dividends= = (640000+125000)/(1. 4.62 BEP quantity considering dividend and ignoring union demands = = = = (Total Fixed cost + Operating Incom (640000+200000)/(1.e.e the contribution of Products A.66 The assumptions implicit in Bill French's determination of company's Break even point are: 1.15-0.15-0.59 1423728.62) 1443396. Since the company plans to bring down the production of Product A and to increase the production of Product .Target operating income = 200000 Effect of Union demands : Total Variable Costs= 1086250 so Variable costs per Unit =0.62) 1584905. His Break even point is based on the assumption that the Sales Mix i. there is only one braekeven point for t 2. Bill has also assumed that Sales Revenues and total costs will behave linearly over the relevant range.226 (640000+200000)/(1.B and C to 3.15-0.

A .620714 .Same C .62 variable cost increase by 10% 1086250 0.increase by 450000 increase C SP to double 10000 per month investment increase =0.2/3 of volume B.

so the proportion of fixed cost allocated to Product C must increase and to Product A must decrease. the relevant range.56) 000+125000)/(1.15-0.B and C to the total Sales will remain constant. Bill h .62) 000+200000)/(1.62 al Fixed cost + Operating Income)/Contribution margin 000+200000)/(1.15-0. ution of Products A.=0. se the production of Product C.62) nly one braekeven point for the company as a whole.15-0.

.

Bill has not taken care of this. .o Product A must decrease.

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