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## ë . Following assumptions are made by Bill French

1. Product mix will remain same irrespective of volume so the average price and
average variable cost
2. There will not be any increase in fixed or variable cost

## Aggregate "A" "B" "C"

Sales at full capacity (units) 2,000,000
Actual sales volume (units) 1,300,000 400,000 400,000 500,000
Unit sales price \$ 7.69 \$ 10.00 \$ 9.00 \$ 4.80
Total sales revenue 10,000,000 4,000,000 3,600,000 2,400,000
Variable cost per unit 4.04 7.50 3.75 1.50
Total variable cost 5,250,000 3,000,000 1,500,000 750,000
Fixed cost 3,690,000
Profit 1,060,000

a) Break-even point

## In units = Fixed cost/ (Selling price ± Variable Cost)

= 3,690,000/ (7.69- 4.04)
= 1,009,895
b) Level of operation to pay extra dividend ignoring union demand

## PBT required 1,200,000

PAT 600,000
Contribution per unit "A" 2.50
"B" 5.25
"C" 3.30
Additional units of "C" =140,000/3.30 42,424
Level of operation
units =1,300,000+42,424 1,342,424
% =1,342,424/2,000,000 67.12%
Additional capacity requirement of ³C´ units can be managed by shifting some
assets from ³A´ to ³C´.
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## Aggregate "A" "B" "C"

Sales at full capacity (units) 2,000,000
Actual sales volume (units) 1,300,000 400,000 400,000 500,000
\$
Unit sales price \$ 7.69 10.00 \$ 9.00 \$ 4.80
Total sales revenue 10,000,000 4,000,000 3,600,000 2,400,000
Variable cost per unit
(increased by 10%) 4.44 8.25 4.13 1.65
Total variable cost 5,775,000 3,300,000 1,650,000 825,000
Fixed cost 3,690,000
Profit 535,000

## PBT required 900,000

PAT 450,000
Contribution per unit "A" 2.50
"B" 5.25
"C" 3.30
Additional units of "C" =365,000/3.30 110,606
Level of operation
units =1,300,000+110,606 1,410,606
% =1,410,606/2,000,000 70.53%
Additional capacity requirement of ³C´ units can be managed by shifting some
assets from ³A´ to ³C

## d) Level of operation to meet union demand and to pay extra dividend

PBT 1,200,000
PAT 600,000
Contribution per unit "A" 2.50
"B" 5.25
"C" 3.30
Additional units of "C" =665,000/3.30 201,515
Level of operation
units =1,300,000+201,515 1,501,515
% =1,501,515/2,000,000 75.08%
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## Additional capacity requirement of ³C´ units can be managed by shifting some

assets from ³A´ to ³C

ë. No, only break-even analysis will not help in deciding product mix. Break-
analysis gives idea about how many aggregate units we must sale to cover fixed
cost. But to decide whether to alter existing product emphasis we must know
contribution per unit of individual product. If fixed assets can used to manufacture
any product line then we must try to maximize overall contribution rather than
increasing total volume.
Company can sell 950000 units of product ³C´

## Aggregate "A" "B" "C"

Sales at full capacity (units) 2,000,000
Actual sales volume (units) 1,750,000 400,000 400,000 950,000
\$
Unit sales price \$ 6.95 10.00 \$ 9.00 \$ 4.80
Total sales revenue 12,160,000 4,000,000 3,600,000 4,560,000
Variable cost per unit 3.72 8.25 4.13 1.65
Total variable cost 6,517,500 3,300,000 1,650,000 1,567,500
Fixed cost 3,690,000
Profit 1,952,500

PBT 1,200,000
Extra amount 752,500
per month 62,708

If company decides to increase capacity for product ´C´ then they can afford at
max fixed cost of \$ 62708 per month.

ë

## Aggregate "A" "B" "C"

Sales at full capacity (units) 2,000,000
Actual sales volume (units) 1,500,000 600,000 400,000 500,000
Unit sales price \$ 7.20 \$ 10.00 \$ 9.00 \$ 2.40
Total sales revenue 10,800,000 6,000,000 3,600,000 1,200,000
Variable cost per unit 4.50 7.50 3.75 1.50
Total variable cost 6,750,000 4,500,000 1,500,000 750,000
Fixed cost 2,970,000 960,000 1,560,000 450,000
Profit 1,080,000 540,000 540,000 0
Break even units 1,100,000 384,000 297,143 500,000
Contribution per unit \$ 2.7 2.5 5.25 0.9
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## Sum of three product¶s break-even point volumes is 1,181,143 and this is

different than aggregate break-even point volume because fixed cost and
contribution per unit of individual product are not in same proportion.

ë This analysis is definitely has some value provided that forecasting goes
right. This analysis can be use for:
1. Deciding product mix
2. To maximize the profit
3. For investment/capacity decision
4. For maximizing utilization of capacity