Bill French Case Essay

1. What are the assumptions implicit in Bill Frenchs determination of his keep societys discriminate- yet point? * He has assumed that there is just one break plain point for the firm (by taking the average of the 3 products). * He has also assumed that the sales mix leave behind roost constant. Total r til nowue and total expenses behave in a bilinear manner over the relevant range. * Since the capacity is being expanded to emergence labor of Product C, it could be assumed that this increase should be allocated to this product. drudgery of Product A is to be scaled down, but its level of pertinacious comprises has been assumed to be unchanged. * Constant dividends are paid erupt to the companys stockholders. * Labor union will not importantly affect cost structure. No substantial changes in product prices.2. On the basis of Frenchs revised information, what does next year tone like?a. What is the break-even point?The break even unit for the aggregate production is 1,0 35,686 units. Calculation of the break even points using the new estimates Breakeven points have been metrical using the formula Breakeven number of units = Fixed costs / Contribution gross profit margin per unit, where Contribution margin per unit = Selling price Variable cost per unitb. What level of operations must be achieved to pay the unnecessary dividend, ignoring union demands? To pay the extra dividend of 50% and to retain the profit of 150,000 we call for to have the profit after taxes as 600,000. As half of the revenues go to the government as taxes therefore the total revenues before tax import should be get even to 1,200,000.c. What level of operations must be achieved to touch on union demands, ignoring bonus dividends?d. What level of operations must be achieved to come over both union demands & bonus dividends?3. Can the break-even digest help the company decide whether to alter the actual product emphasis? What can the company afford to invest for additio nal C capacity? Break even outline can be apply to decide whether to alter the existing product emphasis or not. In this case, based from previous years data, it is not feasible to manufacture product C at 2.40 / unit. Below table provides checking whether the company can afford to invest in additional C capacity.4. Calculate each of the three products break even points using Exhibit 3. Why is the sum of these three glitzs not equal to the 1,100,000 units aggregate break-even volume? The sum of three break even volumes does not equate the aggregate break even volume because of varying fixed costs. It is illustrated in the below tableQuestion 5 Is this type of analysis of any value? For what can it be used?Break-Even analysis explains the relationship between cost, production, volume and returns. It can be lengthened to show how changes in fixed cost, variable cost, commodity prices, revenue will affect profit levels and break even points. Break even analysis is most useful when u sed with partial budgeting, capital budgeting techniques. The break even analysis helps understand and formulate the relationship between costs (fixed and variable), take and profit. The technique can be used to set sales targets and/or prices to generate target profits. In a wide product range, the analysis helps to find out which products are performing well and which are star(p) to losses .It is also versatile enough to include items like donations, pursue increases, etc. that directly or indirectly affect costs.