Read BW Manufacturing below:
Answer the following questions:
1)Identify the industry, key success factors, etc. that are unique to BW Manufacturing.
2)Calculate the contribution margin for Grill A (show your work)
3)Identify the qualitative factors that should be considered if Grill A is dropped (provide 2 specific factors)
4)Determine the contribution margin for Grill C (show your work)
5)What are the qualitative factors that should be considered if prices are lowered for Grill C. (provide 2 specific factors)
BW MANUFACTURING COMPANY In mid~December 2008, Inez Wallace and Oliver Blanchard were almost through with the 2009 operating budget for their company, BW Manufacturing Company (BW). BW produced gas grills in three primary models {Grills A, B, and C). The industry was dominated by Weber, Dueane, Coleman, Sunbeam, and Holland, which together made dozens of types of grills, smokers, and cooking kettles. BW was a small player in the industry, but business had been good, and it was expecting another protable year. A draft of the company's operating budget is shown in Exhibit 1. Standard costs for the three products are explained in Exhibit 2. Selling, general, and administrative {SG&A), other costs, interest income, and interest expense were likely to remain the same no matter which product-line combinations the company produced. Before calling it a day, the two owners asked their assistant, Justine Richardson, to determine the impact of several options on income before tax. They agreed to meet the following day, and Richardson hurried off to look at what these latest ideas would mean. She had four questions to address and was asked to consider each option independent ofall other options. Richardson and the owners met the following morning to review her work. After considerable discussion, Wallace and Blanchard chose Option Two, lowering the price of Grill C for 2009. Then, the}.r asked Richardson to prepare a revised 2999 budget incorporating this decision. The budget was completed by noon, and Richardson found herself a bit bemused by the results. Having nished her duties, she left for an early.' weekend getaway. She didn't give the budget another thought. Early in January' 2010, Richardson prepared a rough draft of the actual 2009 nancial results (Exhibit 3}; happily, they were better than had been expected. Prices on each grill were as planned, and volume was as shown in Table 1. Table LAetual 2009 volumes. Volume Grill (numbEr of units) A 1 15.000 B l 10.000 C 225.000 Richardson began to wonder if the bottom line was as high as it should have been. Exhibit 1 BW MANUFACTURING COMPANY Operating Budget 2009: Draft l2f18f2008 Sales $41,200,000 Less: costs of products sold 22,800,000 Gross margin $13,400,000 SG'zA 9,350,000 Other costs 2,100,000 Operating income $6,950,000 Less: Interest expense 420,000 Plus: Interest income 150,000 Income before tax $6,680,000 Income taxes 2,333,000 Net income $4,342,000 Source: Created by ease Writer. Exhibit 2 BW MANUFACTURING COMPANY Standard Costs brill A brill B grill 1 Notes Planned Volume (units) 80.000 120.000 200.000 Per unit: Sales price $150 $110 380 Direct costs: Materials 1? [D 1' directly related to production volume Labor 2] l6 4 directly related to production volume Subtotal $38 $26 31 ] Indirect costs: Supplies T 2 ] directly,I related to production volume Labor 10 8 4 one-half varies with direct labor; the rest is xed Supervision 3 3 l unrelated to production volume Energy 12 6 4 one-half varies with direct labor; the rest is xed Depreciation 22 T 5 unrelated to production volume Head office support 12 6 3 corporate ofce allocation" All other 1 l 2 l unrelated to production volume Subtotal $32 $34 519 Total product cost 5120 $60 530 Product-line protability $30 $50 550 " This category comprises accounting. lT. human resouroes. legal. and others supporting the produetion ofthese products. Allocations were made using multiple drivers. Corporate office budgets are unrelated to produetion levels. Exhibit 3 BW MANUFACTURING COMPANY 2009 Operating Results: Dra 1111919010 Revenue Variable costs: Materials Direct labor Supplies Indirect labor Energy Total variable cost Fixed costs: Indirect labor Supervision Energy Depreciation Head ofce All other Total fixed cost Total cost Gross margin SCI-352A Other costs Operating income Less: interest expense Plus: interest income Income before tax Income taxes Net income $46,225,000 4,300,000 5,200,000 1,300,000 1,500,000 1,500,000 $14,400,000 1,300,000 1,200,000 1,350,000 3,660,000 2,300,000 1,380,000 $11,190,000 W $20,635 .000 9,350,000 2. 1 00.000 $9. 1 85 .000 420.000 1 50.000 $8.9 15 .000 3.120.250 $5394.30
