Changes on Planning Production after recomendations that were suggested on the metting:
1) To begin I want to list the assumptions that I considered aggregated information of the three product lines: a) Sales Assumption: Assume sales prices and quanties (sales mix) per each product as invarible and b) Costs Assumptions: Assume variable cost and fixed cost remain the same por each product line, the same prime costs for variable costs and the same plant capacity for fixed cost.
2) After I review the information provided for you the next year will look like:
a) Break-even point: Sales – Variable Cost – Fixed Cost = Net Income 0
Production Weight * X * A Unit Contribution Margin + B ...view middle of the document...
22* X* ($0.295) +0.25*X*($0.813)+ 0.53*X*($0.525)-$640,000=0
X=($640,000/0.546) = 1,172,668 Units
d) Level of operations must to be achieved to meet both dividend and expected union requirements.
Sales – Variable Cost – Fixed Cost = Net Income
$0.546*X = $840,000
X =1,538,462 Units
3) I think that the break-even analysis help the company to decide whether to alter the existing product emphasis, because this analysis let us evaluate which product of the sales mix is more profitable than the others. On the other hand you can realize which product or products are not contributing to the mix as expected, therefore their continuity should be revised. And also I argue that the company could afford to invest for additional C capacity because is a profitability line.
4) Finally I want to tell you that this type of analysis is very valuable up to a point. Since there are a lot of assumptions behind its conclusions, you have to be very cautious with the decisions made after them. It is a very clear tool to measure the profitability of the commercial and production mix of products.
Nevertheless, there are a lot of...