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BW Manufacturing

Analysis Completed By:


Debbie Hufft
Adrienne Larson
Sue Powers
Lisa Pruden

Grill A

Grill B

Grill C

BW Manufacturing Company is considering changes in the product line(s) in order to maximize income. The owners are considering
the following four options to determine how these changes might impact income before taxes for the coming year.

Option #1: Drop Grill A? B & C remain the same


Team Analysis: The impact of dropping Grill A would be a contribution margin loss of $7,520,000 resulting in a net income loss of
$840,000.

Option #2: Lower the price of Grill C to $75? Volume would increase by 20,000 units .
Team Analysis: The impact of this option would be a $180,000 increase in both the contribution margin and net income before taxes.

Option #3: Change in advertising focus will decrease Grill A sales volume by 10,000 and increase Grill C by 10,000.
Team Analysis: The impact of this option would be a decrease in Grill As contribution margin of $940,000 and an increase in Grill Cs
contribution margin of only $640,000 - netting a contribution loss of $300,000. This loss would directly reflect in the net income
before taxes.

Option #4: Lower the price of Grill C to $75 which will decrease volume of Grill A by 10,000 and increase Grill C by 30,000
Team Analysis: The impact of this option would be a decrease in Grill As contribution margin of $940,000 and an increase in Grill
Cs contribution margin of $770,000 - netting a contribution loss of $170,000. This loss would directly reflect in the net income
before taxes.

After considering Ms. Richardsons recommendations, the owners decided to go with Option # 2. After comprehensive analysis, our
team concluded that BW Manufacturing made the correct decision. Our detailed supporting documentation is attached.

BW Manufacturing
Planned Volume
Sale price per unit
Revenue
Variable Costs:
Materials
Direct Labor
Supplies
Indirect Labor (1/2)
Energy (1/2)
Total Variable Cost
Contribution Margin
Fixed Costs:
Indirect Labor (1/2)
Supervision
Energy (1/2)
Depreciation
Head Office
All Other
Total Fixed Cost
Total Product Cost
Product-line profitability
SG&A
Other Costs
Operating Income
Less Interest Expense
Plus Interest Income
Net Income before taxes
Income Tax
Net Income

Grill A
80000
$150
$12,000,000

Grill B
120,000.
$110
$13,200,000

Grill C
200,000.
$80
$16,000,000

Total
320,000.
$190
$41,200,000

$17 $1,360,000
$21 $1,680,000
$7
$560,000
$5
$400,000
$6
$480,000
$56 $4,480,000
$7,520,000

$10 $1,200,000
$16 $1,920,000
$2
$240,000
$4
$480,000
$3
$360,000
$35 $4,200,000
$9,000,000

$7
$4
$1
$2
$2
$16

$1,400,000
$800,000
$200,000
$400,000
$400,000
$3,200,000
$12,800,000

$3,960,000
$4,400,000
$1,000,000
$1,280,000
$1,240,000
$11,880,000
$29,320,000

$5
$400,000
$8
$640,000
$6
$480,000
$22 $1,760,000
$12
$960,000
$11
$880,000
$64 $5,120,000
$120 $9,600,000
$2,400,000

$4
$480,000
$3
$360,000
$3
$360,000
$7
$840,000
$6
$720,000
$2
$240,000
$25 $3,000,000
$60 $7,200,000
$6,000,000

$2
$1
$2
$5
$3
$1
$14
$30

$400,000
$200,000
$400,000
$1,000,000
$600,000
$200,000
$2,800,000
$6,000,000
$10,000,000

$1,280,000
$1,200,000
$1,240,000
$3,600,000
$2,280,000
$1,320,000
$10,920,000
$22,800,000
$18,400,000
$9,350,000
$2,100,000
$6,950,000
-$420,000
$150,000
$6,680,000
$2,338,000
$4,342,000

BW Manufacturing

Volume
Sales price
Revenue
Variable costs:
Materials
Direct Labor
Supplies
Indirect Labor (1/2)
Energy (1/2)
Total Variable Cost
Contribution Margin
Fixed costs:
Indirect Labor (1/2)
Supervision
Energy (1/2)
Depreciation
Head Office
All Other
Total Fixed Cost
Total Cost
Profit Margin
SG&A
Other Cost
Operating Income
Less: Interest
expense
Plus: Interest
income
Income before tax
Income taxes
Net income

Total-no
Grill A
Grill B
Grill C
change
Total - 1
80000
120,000
200,000
150
110
80
12000000 13200000 16000000 41200000 29200000

1360000
1680000
560000
400000
480000
4480000
7520000

1200000 1400000
1920000
800000
240000
200000
480000
400000
360000
400000
4200000 3200000
9000000 12800000

3960000 2600000
4400000 2720000
1000000
440000
1280000
880000
1240000
760000
11880000 7400000
29320000 21800000

400000
640000
480000
1760000
960000
880000
5120000
9600000
2400000

480000
400000
360000
200000
360000
400000
840000 1000000
720000
600000
240000
200000
3000000 2800000
7200000 6000000
6000000 10000000

1280000 1280000
1200000 1200000
1240000 1240000
3600000 3600000
2280000 2280000
1320000 1320000
10920000 10920000
22800000 18320000
18400000 10880000
9350000 9350000
2100000 2100000
6950000
-570000
-420000

-420000

150000
6680000
2338000
4342000

150000
-840000
0
-840000