Bw Manufacturing

Case 3.BW MANUFACTURING COMPANY

We have a lot of variable costs and we work on contribution margin.

The assignment:

1. Build a budget (and income statement) correctly. In between of Exhibit 1 and 2.

2. Calculate the 1st proposal (to drop Grill A).

3. Calculate the proposal #2 – lower the price of Grill C to 75$ (with a 20,000-unit increase in sales

of Grill C).

Correct budget (in cost per unit)

Grill A

$

150

Grill B

$

Sales price/unit

Planned volume

Turnover

VC

Material

Labor

Supplies

Energy (1/2)

Labor (1/2)

Fixed direct costs

2,800,000

Labor (1/2) 5

Supervision 8

Depreciation 22

Contribution

margin

$ 4,720,000

Fixed costs

Energy (1/2)

Head Office

Support

Gross margin

110

80,000

120,000

$ 12,000,000 $ 13,200,000

4,480,000

4,200,000

Total

400,000

$41,200,000

11,880,000

17

21

7

6

5

2,320,000

10

16

2

3

4

1,680,000

4

3

7

$

7,320,000

1,320,000

6

Grill C

$

80

200,000

$ 16,000,000

3,200,000

7

4

1

2

2

1,600,000

2

1

5

$ 11,200,000

1,200,000

6,080,000

All other

3

6

2

12

11

Brief income statement

Grill B

4,840,000

2

3

1

$ 18,400,000

Grill A

$ 12,000,000 $ 13,200,000 $

4,480,000

4,200,000

2,800,000

Grill C

16,000,000 $ 41,200,000

3,200,000

11,880,000

1,600,000

Total

Turnover

VC

Fixed direct

costs

Contribution

margin

$ 4,720,000 $ 7,320,000 $ 11,200,000

Fixed costs

$ 4,840,000

Gross

margin

1,680,000

6,080,000

$ 18,400,000

Correct budget in $

Sales price/unit

Planned volume

Turnover

VC

Material 1,360,000

Labor 1,680,000

Contribution

margin

VC indirect

Supplies

Energy (1/2)

Labor (1/2)

VC TOTAL

Contribution

margin (the

right)

Fixed direct

costs

Labor (1/2) 400,000

Supervision 640,000

Depreciation 1,760,000

840,000

1,000,000

3,600,000

Fixed costs

2,320,000

1,320,000

1,200,000

4,840,000...