# 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
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?
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?

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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