Berkshire Threaded Fasteners

Berkshire Threaded Fasteners

1. If the company had dropped the 300 series as of January 1, 1974, what effect would that action have had on the profit for the first six months of 1974?

Base on my analysis of the company, it appears that the company should keep the 300 series since based on my analysis below, dropping the series will end up costing more than continue to produce it. The withdrawal of the 300 series will affect raw materials, labor, power, and repairs. It will have no effect on other costs since they are allocated across to three product lines. The results for the first six month of 1974 would project an operating income of $160,554 of the 300 series were produced. The sales would have been reduced by $2,714,179 and the variable cost would have been reduced by $1,523,000 associated to the 300 series item. Fixed costs remains the same. Please see below for profit & loss and discontinue 300 series analysis.

P&L Analysis

Product Line New SP Quantity New sales Previous Sales Change in Income

100 series $2.45 2,132,191 $ 5,223,868 $ 5,168,000 $ 55,868

200 series $2.58 1,029,654 $ 2,656,507 $ 2,598,000 $ 58,507

300 series $2.75 986,974 $ 2,714,179 $ 2,668,000 $ 46,179

Total $ 160,554

Discontinue 300 series

Change in Income

Sales $ (2,714,179)

Variable Cost:

Labor $ 688,000

Raw Materials $ 795,000

Power $ 30,000

Repairs $ 10,000

Total Variable Costs $ 1,523,000

Lost Contribution Margin $ (1,191,179)

Fixed Cost 0

Net Disadvantage $ (1,191,179)

Loss before Taxes $ (73,000)

Changes:

Increase of Sales $ 160,554

Net Disadvantage $ (1,191,179)

Loss before Taxes $ (1,103,625)

2....