Bill French Write Up

Submitted By rdzuan83
Words 2105
Pages 9
Bill French
Case 16-3

Introduction

French, a staff accountant who was hired six months was well aware of his capabilities and took advantage of every opportunity that arose to try to educate those around him. Then, he was requested permission to make a presentation of some break-even data.

The Duo-Products Corporation had not been making use of this type of analysis in its planning or review procedures. What French had done was to determine the level at which the company must operate in order to break even.

He uses information given in past accounting records to construct his break even analysis without take into consideration with other department about the company operation.

As per Bill French: “The company must be able at least to sell a sufficient volume of goods so that it will cover all the variable costs of producing and selling the goods. Further, it will not make a profit unless it covers the fixed cost as well. The level of operation at which total costs are just covered is the break-even volume. This should be the lower limit in all our planning.”

Question 1

What are the assumptions implicit in Bill French’s determination of his company’s break-even point?

1. There was only one break-even point for the firm whether product by product or in total (he taking average of 3 products). Refer to the table below.

| A | B | C | Aggregate | Sales at full capacity (units) | | | | 2,000,000 | Sales Volume (units) | 600 000 | 400 000 | 500 000 | 1 500 000 | Unit Sales Price | \$10 | \$9 | \$2.4 | \$7.2 | | | | | | Sales revenue | \$6,000,000 | \$3,600,000 | \$1,200,000 | \$10,800,000 | Variable cost per unit | \$7.5 | \$3.75 | \$1.5 | \$4.5 | Contribution margin per unit(Selling price – variable cost per unit) | \$2.5(\$10-\$7.5) | \$5.25(\$9 – \$3.75) | \$0.9(\$2.4 - \$1.5) | \$2.7(\$7.2 - \$4.5) | | | | | | Total variable cost | \$4,500,000 |...

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