The owners of BW Manufacturing, a small manufacturer of gas grills, have prepared a preliminary budget for the upcoming year and would like to assess the financial impact of several alternative scenarios, including dropping a product; changing the price on a product, with a resulting increase in volume; and shifting advertising focus, with a resulting shift in volume from one product to another. A new budget must be prepared. At year-end, the actual results are better than had been planned, but not necessarily better than what should have been, given actual sales volumes. Hint Consider using the topic of contribution analysis as an easy way to analyze profit-planning issues such as adding or dropping a product or service; changing a price; adding or decreasing expected volumes; or preparing a profit budget. In this particular situation, there are three products, each with different proportions of variable and fixed costs. Make sure you can identify variable and fix costs. Pay attention to the relation of profit and contribution margin. In addition, you also need to consider non-financial factors prior to make your decision. Required : e) Prepare a revised 2016 profit budget assuming the owners chose Option 2 lowering the price of Grill C to $75 and expecting sales volume of that grill to increase to 220,000 units. f) The actual results for 2016 are shown in Exhibits3-4. Was 2016 net income more or less than what should have been expected given these actual volumes and prices? If the results were different, why The owners of BW Manufacturing, a small manufactur

Table 1. Actual 2009 volumes
Grill	Volume (# in units)
A	115,000
B	110,000
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 12/18/2008
Sales	$41,200,000
Less: costs of products sold	$22,800,000
Gross margin	$18,400,000
SG&A	$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	$2,338,000
Net income	$4,342,000
Exhibit 2
Standard Costs
	Grill A	Grill B	Grill C
Planned Volume (units)	80,000	120,000	200,000
Per Unit:
Sales price	$150	$110	$80
Direct Costs:
Materials	17	10	7	directly related to production volume
Labor	21	16	4	directly related to production volume
Subtotal	$38	$26	$11
Indirect costs:
Supplies	7	2	1	directly related to production volume
Labor	10	8	4	one-half varies with direct labor; the rest is fixed
Supervision	8	3	1	unrelated to production volume
Energy	12	6	4	one-half varies with direct labor; the rest is fixed
Depreciation	22	7	5	unrelated to production volume
Head office support	12	6	3	corporate office allocation*
All other	11	2	1	unrelated to production volume
Subtotal	$82	$34	$19
Total product cost	$120	$60	$30
Product-line profitability	$30	$50	$50
*This category comprises accounting, IT, human resources, legal, and other supporting the production of these products.
Allocations were made using multiple drivers. Corporate office budgets are unrelated to production levels.
Exhibit 3
2009 Operating Results: Draft 1/19/2010
Revenue	$46,225,000
Variable costs:
Materials	4,800,000
Direct labor	5,200,000
Supplies	1,300,000
Indirect labor	1,500,000
Energy	1,600,000
Total variable cost	$14,400,000
Fixed costs:
Indirect labor	1,300,000
Supervision	1,200,000
Energy	1,350,000
Depreciation	3,660,000
Head office	2,300,000
All other	1,380,000
Total fixed cost	$11,190,000
Total cost	$25,590,000
Gross margin	$20,635,000
SG&A	9,350,000
Other costs	2,100,000
Operating income	$9,185,000
Less: interest expense	420,000
Plus: interest income	150,000
Income before tax	$8,915,000
Income taxes	$3,120,250
Net income	$5,794,750