Bill French Case Analysis

Topics: Management accounting, Dividend, Costs Pages: 4 (607 words) Published: November 17, 2014
Strategic Cost Management
Bill French Case Analysis

1) 1. In a “normal year,” what is the break-even point in units for the year when performing CVP analysis on a product-by-product basis?

Product A
Product B
Product C
USP (given)
\$1.67
\$1.50
\$0.40
UVC (given)
\$1.25
\$0.63
\$0.25
UCM
\$0.42
\$0.87
\$0.15
FC (given)
\$170,000
\$275,000
\$75,000
BEP (units)
404,762
316,092
500,000
BEunits=1,220,854
Calculations:
UCM: Product A (1.67-1.25)= .42 Product B (1.50-.63)= .87 Product C (.40-.25)= .15

BEP: Product A (170,000/.42)=404,762 Product B (275,000/.87)=316,092 Product C (75,000/.15)=500,000

2) In a “normal year,” what is the break-even point in units for the year assuming the sales mix implied by Exhibit 2? (Be sure to report sales volume for each product.)

Product A
Product B
Product C
USP (given)
\$1.67
\$1.50
\$0.40
UVC (given)
\$1.25
\$0.63
\$0.25
UCM
\$0.42
\$0.87
\$0.15
Sales Mix
462,222
312,000
381,334
BEunits=1,155,556
Calculations:
UCM: (calculated above)
WACM: (.42 *600,000)+ (.87*400,000)+ (.15*500,000)=675,000
675,000/1,500,000= .45
Total BE: 540,000/ .45=1,155,556
Percentage of total sales: A-600,000/1,500,000=.40 B-400,000/1,500,000=.27 C-500,000/1,500,000=.33
Sales Mix: A-1,155,556*.4=462,222 B-1,155,556*.27=312,000 C-1,155,556*.33=381,334

3) Given the information Bill French received, what is the new break-even point in units for the year given the new implied sales mix? In your calculations, assume that (i) the increase in sales for Product C will happen regardless of changes in production costs, and (ii) the decrease in sales for Product A is exactly 1/3 of sales in a “normal year.” (Be sure to report sales volume for each product.)

Product A
Product B
Product C
Unit Sales
400,000
400,000
950,000
USP
\$1.67
\$1.50
\$0.80*
UVC
\$1.38
\$0.69
\$0.28
UCM
\$0.29
\$0.81
\$0.52
Sales Mix
288,627
288,627
677,647...