Bill French Analysis Essay

966 Words Dec 7th, 2010 4 Pages
BILL FRENCH CASE Question 1: What are the assumptions implicit in Bill French’s determination of his company’s break-even point?
The following assumptions are implicit in Bill French’s determination:
• He has assumed that there is just one breakeven point for the firm (by taking the average of the 3 products)
• He has also assumed that the sales mix will remain constant
• He has also assumed that the sales mix will remain constant. Total revenue and total expenses behave in a linear manner over the relevant range
• Since the capacity is being expanded to increase production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of
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Answer.
To pay the extra dividend of 50% and to retain the profit of $150000 we need to have the profit after taxes as $600000. As half of the revenues go to the government as taxes therefore the total revenues before tax deduction should be equal to $1200000.
Operating income after taxes ($450000 dividend + $150000 profits) $ 600000
Selling price $6.95
Variable cost per unit $3.39
Contribution margin per unit $3.56
Operating income before tax (assuming 50% of the revenue goes as tax to the government) $ 1200000
Total Fixed Cost $3690000
No of units required to be produced = (FC + Operating income)/Contribution 1373595

c. What level of operations must be achieved to meet union demands, ignoring bonus dividends?
Answer.
Operating income after taxes ($450000 dividend + $150000 profits) $450000
Selling Price $6.95
Variable cost per unit $3.73
Contribution margin per unit $3.2
Operating income before tax (assuming 50% of the revenue goes as tax to the government) $900000
Total Fixed Cost $3690000
No of units required to be produced = (FC + Operating income)/Contribution 1434375

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

Answer.
Operating income after taxes ($450000 dividend + $150000 profits) $600000
Contribution margin per unit $3.2
Operating income before tax (assuming 50% of the revenue goes as tax to the government) $1200000
Total

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