Bill French

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

Sales volume will be maintained.

No planned changes in volume next year

Only one, aggregate break-even point is utilized in the analysis.

Sales mix will remain constant.

Linearity will be exhibited by both total revenues and expenses over the relevant range.

No capital investments that will increase fixed costs.

Constant dividends are paid out to the company's stockholders.

Labor union will not significantly affect cost structure.

No substantial changes in product prices.

Given Information: Breakeven Point (Original Sales) Aggregate A B C

Sales at Full Capacity (units)

2,000,000

Actual Sales Volume

1,500,000

600,000

400,000

500,000 Unit Sales Price $7.20 $10.00 $9.00 $2.40

Total Sales Revenue

10,800,000

6,000,000

3,600,000.000

1,200,000 Variable Cost per Unit 4.50 7.50 3.75 1.50

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 Profit 1,080,000 540,000 540,000 0

Ratios:

Variable cost to sales

0.625

0.75

0.42

0.625

Unit contribution to sales

0.375

0.25

0.58

0.375

Utilization of capacity

75%

30%

20%

25%

2. On the basis of French's revised information, what does next year look like:

a. What is the break-even point?

Breakeven Point (Reallocated Sales) Aggregate A B C

Sales at Full Capacity (units)

2,000,000.000

Sales Mix 0.229 0.229 0.543

Actual Sales Volume

1,750,000.000 400,000.000 400,000.000 950,000.000 Unit Sales Price 7.200 10.000 9.000 4.800

Total Sales Revenue

12,600,000.000

4,000,000.000

3,600,000.000

4,560,000.000 Variable Cost per Unit 4.500 8.250 4.125 1.650

Fixed Costs (Total)

3,690,000.000

640,000.00

1,560,000.00

1,490,000.00 Contribution Margin per Unit 2.700 1.750 4.875 3.150

Weighted Contribution Margin

3.224

0.400

1.114

1.710 Breakeven Point 1,144,540.943 236,728.148 236,728.148 562,229.350

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

Breakeven Point (Reallocated Sales) Aggregate A B C

Sales at Full Capacity (units)

2,000,000.000

Sales Mix 0.229 0.229 0.543

Actual