Bw Manufacturing
BW MANUFACTURING COMPANY
CASE SUMMARY
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.
TEACHING OBJECTIVES
This short case addresses 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 situation there are three products, each with different proportions of variable and fixed costs. The product with the highest profit per unit on a full cost basis has the lowest contribution per unit on a variable cost basis, and vice versa. Four different marketing plans are proposed before one is finally adopted as the plan for the year. At year-end the actual results can be compared with the budget and with a flex or adjusted budget based on the actual product volumes realized. The numbers are simple and the students can readily see the benefit of variable costing.
SUGGESTED STUDENT ASSIGNMENT 1. Calculate the impact of dropping Grill A. Assume no other changes to the plan. | Grill A | Grill B | Grill C | Total | Volume | 115,000 | 110,000 | 225,000 | | Price | $150 | $110 | $80 | | Revenues | 17,250,000 | 12,100,000 | 18,000,000 | | | | | | | VC material | 17 | 10 | 7 | | 1/2labor | 5 | 4 | 2 | | 1/2energy | 6 | 3 | 2 | | Labor | 21 | 16 | 4 | | Supplies | 7 | 2 | 1 | | VC total | 6,440,000 | 3,850,000 |
CASE SUMMARY
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.
TEACHING OBJECTIVES
This short case addresses 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 situation there are three products, each with different proportions of variable and fixed costs. The product with the highest profit per unit on a full cost basis has the lowest contribution per unit on a variable cost basis, and vice versa. Four different marketing plans are proposed before one is finally adopted as the plan for the year. At year-end the actual results can be compared with the budget and with a flex or adjusted budget based on the actual product volumes realized. The numbers are simple and the students can readily see the benefit of variable costing.
SUGGESTED STUDENT ASSIGNMENT 1. Calculate the impact of dropping Grill A. Assume no other changes to the plan. | Grill A | Grill B | Grill C | Total | Volume | 115,000 | 110,000 | 225,000 | | Price | $150 | $110 | $80 | | Revenues | 17,250,000 | 12,100,000 | 18,000,000 | | | | | | | VC material | 17 | 10 | 7 | | 1/2labor | 5 | 4 | 2 | | 1/2energy | 6 | 3 | 2 | | Labor | 21 | 16 | 4 | | Supplies | 7 | 2 | 1 | | VC total | 6,440,000 | 3,850,000 |