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BILL FRENCH
Bill French picked up the phone and called his boss, Wes Davidson, controller of DuoProducts Corporation. “Wes, I’m all set for the meeting this afternoon. I’ve put together a set of break-even statements that should really make people sit up and take notice – and I think they’ll be able to understand them, too.” After a brief conversation, French concluded the call and turned to his charts for one last checkout before the meeting. French had been hired six months earlier as a staff accountant. He was directly responsible to Davidson and had been doing routine types of analytical work. French was a business school graduate and was considered by his associates to be quite capable and unusually
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The following exchange ensued (see Exhibit 2 for a list of participants and their titles):
Exhibit 1. Break-Even Chart – Total Business
Exhibit 2. List of Participants in the Meeting Bill French................................ Wes Davidson ......................... John Cooper ............................ Fred Williams........................... Ray Bradshaw ......................... Arnie Winetki ........................... Anne Fraser............................. Staff Accountant Controller Production Control Manufacturing Assistant Sales Manager General Sales Manager Administrative Assistant to President
(bill french: p. 2/5)
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John Cooper: You know, Bill, I’m really concerned that you haven’t allowed for our planned changes in volume next year. It seems to me that you should have allowed for the sales department’s guess that we’ll boost unit sales by 20 percent. We’ll be pushing 90 percent of capacity then. It sure seems that this would make quite a difference in your figuring. Bill French: That might be true, but as you can see, all you have to do is read the cost and profit relationship right off the chart for the new volume. Let’s see – at a million eight-hundred-thousand units we’d … Fred Williams: Wait a minute, now! If you’re going to talk in terms of 90 percent of capacity, and it looks like that’s what it will be, you had better note that we’ll be shelling out
The company started off producing 20,000 units of mountain bikes. We did not change the production quantity. Last year our forecast sales were 24,000 when we only sold 19,866; therefore we thought it would be best to leave production at 20,000 bikes. Having excess inventory, we concluded that 20,000 units should be enough considering our quality has not changed and our advertising will not increase the sales dramatically. Although we had the choice to produce as much as 30,000 units, we felt as though we did not have sufficient money to increase production. We were interested in allocating the money towards marketing as opposed to production. We realized that without awareness, no matter how many units we make, sales would be inefficient.
Representing costs as a percentage of sales is not the best way to judge efficiency since it can ignore variables such as bottle deposits and discounted rates, which would show problems in production when in fact there are not any. Therefore, JJ’s statement on production remains truthful when he said that CBI has been operating as efficiently, if not more, in the past. Here’s an example:
3. On the topic of capitalizing line costs, critique the rationale included in CEO Scott Sullivan's
On an overcast afternoon in Portland, Oregon, on Friday, March 28, 2003, Richard Okumoto intently studied a set of hard-copy accounting documents called “adjusting journal entries” spread out on his desk. He had been appointed chief financial officer (CFO) of Electro Scientific Industries, Inc. (ESI), a multi-million dollar equipment manufacturer, just a few weeks earlier. Okumoto was in the midst of closing the company’s books for the third quarter of fiscal year 2003, which ended February 28. An experienced executive who had served as CFO for several other technology firms, Okumoto was familiar with the task, which normally would be routine. But this time, he
In 1976 Rene Levesque won the provincial election and became premier of Quebec with his party, Parti Quebecois. The separatists wanted to strengthen the French language and didn’t care about official bilingualism. So not long after taking office, the Parti Quebecois passed Bill 101, which is also known as the Charter of the French Language. It decreed that French was the single official language of the province of Quebec and that employees of the government had to work in French. Outdoor commercial signs had to be in French only and the children of immigrants would have to go to French schools. The Quebecois likes this new law because they thought their language and culture was becoming endangered. Birth rates in Quebec had gone down and the
While it is true that Ms. Forthright had always exceeded her budgeted sales, the extent to which she diverts away from the managers projections does not necessarily means that she is violating honesty and integrity. Her decision on what her budgeted sales for the year is highly relevant to the data available to her. Her projections tends to lie between the field manager and the marketing manager’s predictions, which can be reasonable because in the past years, the field manager’s projections tend to be over what the actual sales of the year will be.
Henderson Printing is a small-to medium sized firm that manufactures account books, ledgers, and various types of record books that are used in business (Long, 2010, p. 512). This company’s compensation system will be analyzed based on the five contextual variables as discussed in the textbook. The environment in which Henderson Printing operates can be classified as stable, as well as simple. This can be justified, as the company produces stable annual sales, thus it can be concluded that product lifestyles are not short, and product and service demand is constant (Long, 2010, p. 40). Additionally, the product/service provided is fairly simple, and the technology is not complex (Long, 2010, p. 512). The
1. What are the assumptions implicit in Bill French’s determination of his company’s break-even point?
He argues that idle capacity is worse since it has no contribution to overheads whereas a lower price above variable costs would have some positive contribution to the fixed costs and therefore improve profitability for the division. He believes a price of $40 is insufficient to cover the total costs and that the systems division does not want to subsidize the overheads of outside buyers.
Harburg Ltd. Epic Ltd. 20 27 9 13 14 25 29 28 22 30 10 30 4 5 6 11 28
Alex comes up with the consensus that the “Goal” of his business and many others is to increase net profit while simultaneously increasing return on investment and their cash flow at the plant. This basically means to make money. These three measurements can be achieved by looking closer into his second set of measurements. Alex specifically must find a way to increase throughput while at the same time decreasing it inventory and operational expenses. All three of these measurements must be cautiously monitored since they all rely on each other to be obtained in balance. Factors that cause throughput, inventory, and operational expenses to become unbalanced are excess manpower and balance capacity of the demand of resources in the market.
Rob’s goal is to keep margins consistent. As an example, he explained that if a customer wanted to upgrade from 10 seats to 30, an additional $200 in manufacturing costs would be added to
a) Profits. From profit angle, the scenario is straightforward, at any given volume, based on the estimation from the financial director, the profit would be higher by keeping the price at FF20. In fact, as per presented projection, FF15 will never reach BEP and won’t make profit at all (in fact it makes loss), while FF20 will always produce profit, even at the suggested very low volume (which
“Blake Romney became Chief Executive Officer of Peters Inc. two years ago. At the time, the company was reporting lagging profits, and Blake was brought in to "stir things up." The company has three divisions, electronics, fiber optics, and plumbing supplies. Blake has no interest in plumbing supplies, and one of the first things he did was to put pressure on his accountants to reallocate some of the company’s fixed costs away from the other two divisions to the plumbing division. This had the effect of causing the plumbing division to report losses during the last two years; in the past it had always reported low, but acceptable,
Jonah tells them that they have hidden capacity because some of their thinking is incorrect. Some ways to increase capacity at the bottlenecks are not to have any down time within the bottlenecks, make sure they are only working on quality products so not to waste time, and relieve the workload by farming some work out to vendors. Jonah wants to know how much it cost when the bottlenecks (X and heat treat) machines are down. Lou says $32 per hour for the X machine and $21 per hour for heat treat. How much when the whole