Case 6-3 Bill French Answers

1. Bill French has assumed that there is only one breakeven point for the firm.
Another thing he assumed, is that there will be a constant sales mix, hence
total revenue and total expenses will have a linear relationship.
2. Breakeven number of units=Fixed costs/Contribution margin per unit,
Contribution margin per unit=selling price-variable cost per unit.
Aggregate
A
B
C
Sales at full capacity
2000000
Sales volume
1750000
400000
400000
unit sales price
6.948
10
9
Sales revenue
variable cost per unit
Contribution margin per
unit

950000
4.8

12160000
3.385

4000000
7.5

3600000
3.75

4560000
1.5

3.56

2.5

5.25

3.3

Total variable cost

Fixed cost

5925000
3690000

3000000
960000

1500000
1560000

1425000
1170000

Profit
ratios
Variable cost to sales
unit contribution to sales
utilization of capacity

2545000

40000

540000

1965000

0.4871906
0.5128094
0.875

0.75
0.25
0.2

0.416667
0.583333
0.2

0.3125
0.6875
0.475

Break Even Point(Units)

1035686

384000

297143

354545

-The level of operations that must be achieved to pay extra dividend, ignoring the
union demands are total revenues before tax deductions=$1.2 million.
Operating Income After taxes
$600,000.00
Selling Price
$6.95
Variable Cost per unit
$3.39
Contribution margin per unit
$3.56
operating income before tax
$1,200,000.00
total fixed cost
$3,690,000.00
Number of units required to be produced=(FC+OI)/Contribution $1,373,595.00
Operating Income After taxes
Selling Price
Variable Cost per unit
Contribution margin per unit
operating income before tax
total fixed cost
Number of units required to be produced=(FC+OI)/Contribution

$450,000.00
$6.95
$3.73
$3.20
$900,000.00
$3,690,000.00
$1,434,375.00

Operating Income After taxes

Selling Price
Variable Cost per unit
Contribution margin per unit
operating income before tax
total fixed cost
Number of units required to be produced=(FC+OI)/Contribution

$600,000.00
$6.95
$3.73
$3.20
$1,200,000.00
$3,690,000.00
$1,528,125.00

3. Beakeven analysis can be used in deciding wether or not to alter the existing
product. In product C at 2.40 per unit we conclude that its not a good thing to
manufacture poduct C.

C
Sales at full capacity
Sales volume
unit sales price

950000
4.8

Sales revenue
variable cost per unit
Contribution margin per
unit

4560000
1.5

Total variable cost

Fixed cost

1425000
1170000

3.3

Profit

1965000(Investment
a company can
afford)

Sales at full capacity

Sales volume
unit sales price

4.
Aggregate A
B
C
2000000
1500000
600000
400000
500000
7.2
10
9
2.4

Sales revenue

10800000

6000000

3600000

1200000

variable cost per unit

Contribution margin per
unit
Total variable cost
Fixed cost

4.5

7.5

3.75

1.5

2.7

2.5

5.25

0.9

6750000
2970000

4500000
960000

1500000
1560000

750000
450000

Profit
0
0
0
0
ratios
Variable cost to sales
0.625
0.75
0.416667
0.625
unit contribution to sales
0.375
0.25
0.583333
0.375
utilization of capacity
0.75
0.3
0.58
0.375
Break Even Point(Units)
1100000
384000
297143
500000
Because the break even point of the aggregate must be higher than given.
5. It helps comprehend and see the relationship between cost. It can be used to set
sales target or conclude what prices will generate profit. Also it helps us see which
products are better than others.