Cost Management Accounting Assignment

Bill French Case Study

Group - 11
Group Members
Priyanshi - 80303180006
Deepak Bora – 80303180028
Shivi-80303180175
Diksha sinha- 80303180189
1.
Bill French has made following assumptions to find breakeven points
1. The variability of the variable costs is constant . We will not add up extra variable cost
2. The fixed costs are truly fixed over the fully range of operations because if fixed
3. One Breakeven point for company & all products.
4. Constant Product mix.
5. Sales Price will be same for all the products .

2.
A).
Volume of product A reduced by 2/3rd .
Therefore Aggregate Sales volume= 0.667 X 2000000 =1750000
Volume of product C increased by 2,00,000 + quarter million units(2,50,000)=4,50,000.
Selling price of product C is doubled.
Variable cost of each product line is increased by 10% from the previous year.
Fixed cost is increased by 7,20,000(60k per month).
Tax charge at the rate of 50%.
Dividend budgeted at 4,50,000.

Particulars Aggregate Product

"A" "B" "C"

Sales at 100% Utilization of capacity (units) 2,000,000

Sales Volume (units) 1,750,000 400,000 400,000 950,000

Unit Sales Price $ 6.95 $ 10.00 $ 9.00 $ 4.80

Sales Revenue $12,160,000.00 $4,000,000.00 $3,600,000.00 $4,560,000.00

Variable Cost per unit $3.39 $7.50 $3.75 $1.50

Total Variable Costs $5,925,000.00 $3,000,000.00 $1,500,000.00 $1,425,000.00

Contribution margin per unit $3.56 $2.50 $5.25 $3.30

Contribution margin $6,230,000.00 $1,000,000.00 $2,100,000.00 $3,135,000.00

Fixed Costs $3,690,000.00 $960,000.00 $1,560,000.00 $1,170,000.00

Profit $2,545,000.00 $40,000.00 $540,000.00 $1,965,000.00

Ratios:

Contribution to total sales 100.00% 32.89% 29.61% 37.50%

Contribution margin ratio 51.23% 25.00% 58.33% 68.75%

Variable cost to sales 48.73% 75.00% 41.67% 31.25%

Unit contribution to sales 51.22% 25.00% 58.33% 68.75%

 Utilization of capacity 87.50% 20.00% 20.00% 47.50%

Break Even Point (units) 1,035,686 236,728 236,728 562,229

Break even Point = Fixed Cost /(Selling Price – variable cost )

Breakeven units for aggregate production = 3690000 / (6.95-3.39)

= 3690000 / 3.56 = 1,035,686 units

2.
B).

To pay the extra dividend of 50% and to retain the profit of $150,000, we need to have the profit after
taxes as $600,000. As half of the revenues go to the government as taxes, the total revenue before tax
deduction should be equal to $1,200,000.
Operating income after taxes($450000 dividend + $150000 profits) = $600000
Selling price = $6.95
Variable cost per unit = $3.39
Contribution margin per unit = 6.95-3.39 = 3.56
Operating income before tax = $1200000
Total fixed cost = $3690000
Breakeven Point = (Fixed Cost + Operating income before tax ) \ (Selling Price – variable cost )
Breakeven Point = (1200000+ 3690000) \ (6.95-3.39)
= 1373595

2.
C)
Operating income after taxes($450000 dividend + $150000 profits) = $450000
Selling price = $6.95
Variable cost per unit = $3.73
Contribution margin per unit = 6.95-$3.73= 3.22
Operating Income before taxes = $900000
Total fixed cost = $3690000
Breakeven Point = (Fixed Cost + Operating income before tax ) \ (Selling Price – variable cost )
Breakeven Point = (900000+ 3690000) \ (6.95-$3.73)

= 1434375

2.
D)
Operating income after taxes($450000 dividend + $150000 profits) = $450000
Selling price = $6.95
Variable cost per unit = $3.73
 Contribution margin per unit = 6.95-$3.73= 3.22
Operating Income before taxes = $1200000
Total fixed cost = $3690000
Breakeven Point = (Fixed Cost + Operating income before tax ) \ (Selling Price – variable cost )
Breakeven Point = (1200000 + 3690000) \ (6.95-3.79)
= 1528125

Q3. Can the breakeven analysis help the company decide whether to alter the existing product
emphasis? What can the company afford to invest for additional “C” capacity?
Total number of units produced = 950000
Sales Price = $4.8
Sales revenue = $4560000
Variable cost = $1.5
Total variable cost = $1425000
Contribution = $3135000
Fixed cost = 1170000
Investment the company can afford = Contribution- Fixed cost = 3135000 – 1170000 = 1965000

Breakeven analysis can help the company to decide whether to alter the existing product emphasis.
company can afford to invest 1965000 for C product
 Q4 calculate each products break even points using the data. Why is the sum of these three
volumes not equal to the 1,100,000 unit’s aggregate breakeven volume?
Aggregate A B C
Sales 15,00,000 6,00,000 4,00,000 5,00,000
volume(units)
Units sales 7.20 10 9 2.40
price
Sales revenue $10,800,000.00 $6,000,000.00 $3,600,000.00 $1,200,000.00
Variable cost $4.50 $7.50 $3.75 $1.50
per unit
Contribution $2.70 $2.50 $5.25 $0.90
per unit
Total variable $6,750,000.00 $4,500,000.00 $1,500,000.00 $750,000.00
cost
Fixed cost $2,970,000.00 $960,000.00 $1,560,000.00 $450,000.00
Break-even 1,100,000 384000 297143 500000
points in
units

Sum = 384000+297143+500000 = 1181143

sum of these three volumes not equal to the 1,100,000 unit’s aggregate breakeven volume because each
products unit contribution margin differs.

Q5. Is this type of analysis of any value? For what can it be used?
The break-even analysis helps understand the relationship between Fixed costs and Variable costs, output and
profit. This type of analysis is valuable for deciding product emphasis, unit prices etc.The technique can
be used to set sales targets and prices to generate target profits.
.