Bill French, Accountant
... remain unchanged. This year, I’ve adjusted some of the numbers to determine the company’s profitability using some of the suggestions raised during the last meeting. The firm’s adjusted breakeven point is now 1,076,354 units or $1,247,320. This new point displays the change in production and sales of products A and C, an increase in fixed cost by $10,000 monthly and a change in the sales price of product C from $0.40 to $0.80. Hence, the company needs to produce and sell at least 1,076,354 units in order to cover its fixed costs and just earn zero profit. If the company is not breaking even with its sales level then we may want to find out a way to reduce cost and/or increase sales through more effective marketing campaigns. However, if the company wants to meet union demands and pay bonus dividends to its shareholders, the company will have to produce and sell more units. If the company only wants to meet union demands, then $150,000 is our target net income. The fixed cost would be $790,000, which includes total fixed cost and the target net. This means that in order for the company to have a net income of $25,000 (less ordinary dividends and taxes), we need to sell 1,467,856 units or $1,701,098 to meet union demands. In order to pay dividend and also meet the expected union requirements the company must achieved an even greater level of operation. The company must at least produce and sell approximately 1,560,759 units in order to pay both dividends and meet the expected union requirements. If the we can reach this target amount, then the company will be able to have $25,000 in net income, meet tax obligations, and provide the special dividends as well as match last year’s dividends. If the company cannot produce and sell these numbers of units, then the company would not be able to fulfil its obligations of paying dividend and/or meet the expected union requirements to its shareholders and employees. If it produces less than the breakeven units then the company will be making a loss. In response to the concern regarding the breakeven point for individual product line, due to lack of some important data such as the relevant range when allocating fixed cost to the number of products produced, I make an assumption here that the units shifted from product A doesn’t affect fixed cost of this line, it falls within the relevant range. Since product B remains unchanged and there are total 450,000 units increased in Product C, I allocate the additional $120,000 that Mr. Williams mentioned into this product line. Therefore, applying the break-even analysis, I found that product A is losing money now. We may want to discontinue or abandon this product line. Management should also decide whether to market the product ...