There are a number of simplifying assumptions made by Bill French in his calculations of the breakeven point of his company, Duo – Products Corporation. First, he had assumed that the market conditions will remain the same. Second, his calculations are based on the last year prices; it does not take into account in any change in prices. Third, he also ignores any changes in the fixed and variable costs of the product, which is pointed out by Fred Williams during the meeting. In making the above assumption, he also assumes that the plant capacity will remain the same. Lastly, he has assumed that the sales will be the same as the previous year and also there would be no change in the sales of the different products, i.e. product mix.
2. On the basis of French’s revised information, what does the new year look like:
a. What is the breakeven point
The breakeven point for the new analysis comes out to be 9.64 million units
b. What level of operations must be achieved to pay the extra dividend, ignoring union demands
The level for meeting dividends is 12.80 million units
c. What level of operations must be achieved to meet union demands, ignoring bonus dividends?
The level for meeting union demands is 13.26 million units
d. What level of operations must be achieved to meet both dividends and union requirements?
The level for meeting dividends and union demands is 14.13 million units
3. Can the breakeven analysis help the company to decide whether to alter the existing product emphasis? What can the company afford to invest for additional “C” capacity?
The breakeven analysis is very helpful in taking decisions about the volumes to be produced for each product line. The calculations with the modified data has been done in the next page where, the breakeven point