Bill French Case

1. What are the assumptions implicit in Bill French’s determination of his company’s break-even point? He has assumed that there is only one break-even point for the firm’s three products by taking the average. Labor Union will not affect the product prices no effect on the break-even analysis. Constant dividends were given to stockholders. Production of product â€Å"A† will be decreased and the other hand product â€Å"C† capacity will be increased. Sales price will be constant. 2. On the basis of French’s revised information, what does next year look-like: a. What is the break-even point? Break-even point for product â€Å"C† is 354,545. 45 and overall is 1,035,688. 31. b. What level of operations must be achieved to pay the extra dividend, ignoring union demands? In order to pay the 50% extra dividend and to retain $150,000 profit the firm needs $600,000 profit after taxes and because half of the profit goes through the government the firm needs profit before taxes of ,200,000. c. What level of operations must be achieved to meet the union demands, ignoring break-even points? FC + Union Demands/Unit Contribution to Sales Union Demands = (6,750,000 x10%) = 675,000 2,970,000 + 675,000/. 375 $9,720,000 d. What level of operations must be achieved to meet both dividends and expected union requirements? FC + Target Dividend + Union Demands/Unit Contribution to Sales 2,970,000 + 450,000= (300,000(300,00050%) +675,000/. 375 $10,920,000 3. Can the break-even analysis help the company decide whether to alter the existing product emphasis? What can the company afford to invest for additional â€Å"c† capacity? Considering per unit dollar contribution of product â€Å"C† to â€Å"A† is higher, the other factor is sales. And variable income to sales price is higher than C compensated by its lower sales. Increase in production of product â€Å"c† must not incur $300,000 of cost. 4. Calculate each of the three products’ break-even points using the data in exhibit 3. Why is the sum of these three volumes not equal to the 1,100,000 units’ aggregate break-even volume? It’s different because each of the products has different contribution margins, fixed cost, and volume sales. 5. Is this type of analysis of any value? For what it can be used? It allows differentiation of profits especially if the business is not engaged only on a single product. It helps business to identify how much still they have to sell/hurdle to earn profit. A tool that may help an entity set its sales or production target.