SOLUTION FOR BW MANUFACTURING COMPANY CASE

VENKATARAMAN
1445646

BY: BADRI
ID:

Based on the operating budget - income statement of BW Manufacturing

Company, we see that the Income before tax (EBT) is $6,680,000 and Net
Income after 35% tax is $4,342,000.
Analysis of the 4 options available with BW Manufacturing Co.: Option 1: Involves dropping Grill A from their product range. This in
turn causes loss of $840,000 in IBT along with a loss of $7,520,000 in
contribution margin. This shows that Option 1 is not the best way to go
be profitable!
Option 2: Involves lowering price of Grill C to $75 and increasing
quantity of Grill C by 20,000 units. This results in an increase of IBT
and contribution margin by $180,000. Option 2 seems to be feasible
when it comes to increasing profitability!

Option 3: Involves increasing quantity of Grill C by 10,000 units and

decreasing quantity of Grill A by 10,000 units. This results in a loss in
total contribution margin and IBT by $300,000. This shows that Option
3 is not the best way to go be profitable!
Option 4: Involves lowering price of Grill C to $75 and increasing
quantity of Grill C by 30,000 units and decreasing quantity of Grill A by
10,000 units. This results in a loss in total contribution margin and IBT
by $170,000. This shows that Option 4 is not the best way to go be
profitable!

Upon this detailed analysis, I conclude that the owners decision to go with
Option 2 is correct. Supporting documents are enclosed for review.