Jones Blair Case

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Case: Jones Blair Company

Question: 1. What share does Jones Blair have of the rural household market segment? Rural professional market?

Answer:

Rural Household Market Segment 14.6%
Rural Professional Market Segment 56.3%

Rationale:

HouseholdProfessionalTOTAL
DFW
(non-rural)$1,800,000/$33,600,000
= 5.4%$4,200,000/$14,400,000
= 29.2%$6,000,000/$48,000,000
= 12.5%
Non-DFW (rural)$4,200,000/$28,800,000
= 14.6%$1,800,000/$3,200,000
= 56.3%$6,000,000/$32,000,000
= 18.8%
TOTAL$6,000,000/$62,400,000
= 9.6%$6,000,000/$17,600,000
= 34.1%$12,000,000/$80,000,000
= 15%

Jones Blair Sales – $12,000,000 in 2004 (50/50 DFW/Non-DFW) DFW: 70% of sales professional painter; 30% of sales household painter Non-DFW: 30% of sales professional painter; 70% of sales household painter

Industry Sales – $80,000,000 in 2004 (DFW $48,000,000; Non-DFW $32,000,000) DFW: 30% of sales professional painter; 70% of sales household painter Non-DFW: 10% of sales professional painter; 90% of sales household painter

Question: 2. What dollar sales volume must Jones Blair achieve so as not to lose money on the proposed 20% price cut?

Answer:

Break-even sales (maintaining current profit) = $22,400,000
Break-even sales (no profit) = $16,320,000

Rationale:

Current Sales $12,000,000
Current Profit $1,140,000

Current Contribution Margin 35%
20% Price Cut Contribution Margin 18.75%

Revenue – Cost = Profit
$12,000,000 – Cost = $1,140,000
Cost = $10,860,000

Contribution Margin = (Revenue – Variable Cost)/Revenue
.35 = ($12,000,000 – Variable Cost)/$12,000,000
$4,200,000 = $12,000,000 – Variable Cost
Variable Cost = $7,800,000

Fixed Cost = Total Cost – Variable Cost
Fixed Cost = $10,860,000 - $7,800,000
Fixed Cost = $3,060,000

$3,060,000/.1875 = Break-even (in sales)
Break-even sales (no profit) = $16,320,000

($3,060,000 + $1,140,000)/.1875
Break-even sales (maintaining current profit) = $22,400,000
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