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40048227-Bill-French-Assignment

# 40048227-Bill-French-Assignment - BILL FRENCH CASE...

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BILL FRENCH CASE Submitted By: Pratichi Sharan Section B Question 1: What are the assumptions implicit in Bill French’s determination of his company’s break-even point? The following assumptions are implicit in Bill French’s determination: He has assumed that there is just one breakeven point for the firm (by taking the average of the 3 products) He has also assumed that the sales mix will remain constant He has also assumed that the sales mix will remain constant. Total revenue and total expenses behave in a linear manner over the relevant range Since the capacity is being expanded to increase production of Product C, it could be assumed that this increase should be allocated to this product. Production of Product A is to be scaled down, but its level of fixed costs has been assumed to be unchanged Question 2: On the basis of French’s revised information, what does next year look like? a. What is the break-even point? Calculation of the break even points using the new estimates: Breakeven points have been calculated using the formulae: Breakeven number of units = Fixed costs / Contribution margin per unit Where Contribution margin per unit = Selling price – Variable cost per unit Aggreg ate "A" "B" "C" Sales at full capacity (units) 2000000 Sales Volume (units) 1750000 400000 400000 950000 Unit Sales Price \$6.948 \$10 \$9 \$4.8

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Sales Revenue \$121600 00 \$40000 00 \$36000 00 \$45600
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40048227-Bill-French-Assignment - BILL FRENCH CASE...

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