Bill French

1. What are the assumptions implicit in Bill French's determination of his company's break-

even point?

Bill has the following 3 assumptions:

1. One breakeven point for company and whole products

2. constant product mix

3. no change on fixed costs for the next year if production rate is changes.

2. On the basis of French's revised information, what does next year look like?
Aggregate A B C
Sales Volume 1,750,000 400,000 400,000 950,000
Unit Sales Price 6.95 10 9 4.80
Sales Revenue 12,160,000 4,000,000 3,600,000 4,560,000
Total Variable Cost 3.39 7.50 3.75 1.50
Contribution Margin 3.56 2.50 5.25 3.30
Total Variable Cost 5,925,000 3,000,000 1,500,000 1,425,000
Fixed Costs 3,690,000 960,000 1,560,000 1,170,000
a. What is the break-even point?

Contribution margin per unit = Selling price – Variable cost per unit

Contribution margin per unit = 6.95-3.39

Contribution margin per unit = 3.56

Breakeven number of units = Fixed costs / Contribution margin per unit

Breakeven number of units = 3,690,000 / 3.56

Breakeven number of units = 1,036,516

b. What level of operations must be achieved to pay the extra dividend, ignoring union

demands?
Operating Income After Taxes 600,000
Unit Sales Price 6.95
Unit Variable Cost 3.39
Unit Contribution Margin 3.56
Operating Income before taxes 1,200,000
Fixed Costs 3,690,000

Number of units = ( Fixed Cost + Operating Income ) / Contribution

Number of units = 4,890,000 / 3.56 = 1,373,595

c. What level of operations must be achieved to meet union demands, ignoring bonus

dividends?
Operating Income after taxes 450,000
Unit Sales Price 6.95
Unit Variable Cost 3.73
Unit Contribution Margin 3.22
Operating Income before taxes 900,000
Fixed Costs 3,690,000
Total 4,590,000
Number of units = 4,590,000 / 3.22 = 1,434,375

d. What level of operations must be achieved to meet both union demands & bonus

dividends?
Operating Income after taxes 600,000
Unit Sales Price 6.95
Unit Variable Cost 3.73
Unit Contribution Margin 3.22
Operating Income before taxes 1,200,000
Fixed Costs 3,690,000
Total 4,890,000
Number of units = 4,890,000 / 3.22 = 1,528,125

3. Can the breakeven analysis help the company decide whether to alter the existing

product emphasis? What can the company afford to invest for additional “C” capacity?

Breakeven analysis can help the company to decide whether to alter the existing product

emphasis. Company can afford to invest 1,965,000 for C product.

Product C
 Sales Volume 950,000
Unit Sales Price 4.80
Unit Sales Revenue 4,560,000
Unit Variable Cost 1.50
Total Variable Cost 1,425,000
Contribution 3,135,000
Fixed Costs 1,170,000
Affordable Investment 1,965,000

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 breakeven volume?

Because each products unit contribution margin differs.

Aggregate A B C
Sales Volume 1,500,000 6000000 4000000 500,000
Unit Sales Price 7.20 10 9 2.40
Sales Revenue 10,800,000 6,000,000 36000000 1,200,000
Variable Cost 4.50 7.50 3.75 1.50
Contribution Mar. 2.70 2.50 5.25 0.90
Total Variable Cost 6,750,000 4,500,000 1,500,000 750,000
Fixed Costs 2,970,000 960,000 1,560,000 450,000
Breakeven Units 1,100,000 384,000 297,143 500,000

5. Is this type of analysis of any value? For what can it be used?

This type of analysis can be useful in determining and can contribute in decision making for

emphasis on valuable products, unit prices, allocation rates , standard costs etc. Also they

can contribute in profitability of the firm.