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

| |Aggregate |"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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