Bill French Case Accounting

Bill French Case

Q#1 What are the assumptions implicit in Bill French’s determination of his company’s break-even point?

1. He assumed average details of all the company’s products combined in one break-even point. NO break-even point for individual product.

2. Next year’s profit is assumed based on same level of targets, without considering other plans for the products, additional dividends or additional variable cost due to union demand.

Q#2 On the basis of French’s revised information, what does next year look like?

Changes for next year:

a. Boost sales by 20% at 90% capacity

b. Fixed cost to increase by 60,000/month

c. Last year’s profit = 900,000

To add 50% to 300,000 dividends

600,000 after tax

d. Company’s profit to be considered fixed cost

e. Shift assets of product A to C

(w/ union)

| Aggregate | “A” | “B” | “C” |

Actual Sales Volume | 1,800,000 | 400,000 | 400,000 | 1,000,000 |

Unit Sale Price | 7.93 | 10.00 | 9.00 | 4.80 |

Total Sales Revenue | 13,360,000 | 4,000,000 | 3,600,000 | 5,760,000 |

Variable Cost per Unit | 4.50 | 7.5 | 3.75 | 1.50 |

Total Variable Cost | 6,000,000 | 3,000,000 | 1,500,000 | 1,500,000 |

Fixed Cost | 4,770,000 | 710,000 | 1,560,000 | 2,500,000 |

Profit | 2,590,000 | 290,000 | 540,000 | 1,760,000 |

| | | | |

| | | | |

A. BEP =Fixed cost/ contribution margin = 4,770,000 / 3.43 = 1,390,670.50

B. What level of operation must be achieved to pay extra dividend, ignoring union demands?

Target profit = 2,740,000 = [ Profit + 150,000 (additional Dividends)]

Target Profits in Units: =Fixed Cost +Target Profit/ Contribution Margin

=4,770,000 + 2,740,000 / 3.43

= 2,189504.30

C. What level of operations must be achieved to meet the union demands, ignoring bonus?

Target Profit in units = Fixed Cost + Target Profit

= 4,770,000 + 2,590,000/ 2.98 ( 10 % increase in VC across the board)

= 2,469798.6

D....