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BREEDEN ELECTRONCS (A)


Introduction:
The case is about a company called Breeden Electronics USA which plans to produce two different electronic
signalling devices named RC1 and RC2 for Breedens operation for the year 2000.In October 1999,Marlene
Baer(Controller of Breeden USA) and Herman Klein(President of Breeden USA) decide to check if the target profit set
by Breedens German parent company of $210,000 is being met by the subsidiary(which they are part) in United
States.

Situation Analysis:
The monthly budget for Sales Revenue and Manufacturing cost of the two corresponding products RC1 and RC2 were
given where they had planned to sell 10,000 units of RC1 and 5,000 units of RC2.So the ratio was 2:1 for
RC1:RC2.Also the projected selling price was set to be $20 and $23 for RC1 and Rc2 respectively. The two products
also had fixed and variable price components where parts, direct labour and supplies were considered variable and the
rest of the components were fixed.
Problem Statement:
1. Cost analysis about the Fixed & Variable cost of the 2 products namely RC1 and RC2.
2. Determine the Breakeven analysis for the case where they incur no profit no loss situation.
3. Determine the Revenue & Profit at the breakeven and at the targeted profit of $210,000 for the year 2000.

Cost analysis:

Variable Cost RC1(x) RC2(y)


Parts 55,000 32,000
Direct Labour 35,000 21,000
Supplies 13,125 7,875
Total Variable Cost 1,03,125 60,875

Variable cost calculation:


*[Supplies:RC1: 21,000 X 70,000/1,12,000 = 13,125, RC2 : 21,000 X 42,000/1,12,000= 7,875 ]
Determining of Variable cost per unit:
RC1(x) RC2(y)
Units 10,000 5,000
Total Variable Cost 1,03,125 60,875
Variable Cost Per Unit 10.3125 12.175
*Variable cost per unit=Total variable cost/Units
Total Fixed Cost Calculation:
Fixed Cost (in US$)
Selling and Administrative Expenses 40,000
Occupancy 15,000
Equipment Maintenance 17,000
Equipment Depreciation 8,000
Quality control and production engineering 15,000
Manufacturing administration 36,000
Total Fixed Cost 1,31,000
Total Cost=Total Variable Cost + Total Fixed Cost
Total Cost = (10.3125x + 12.175y) + 1,31,000 [where RC1(x) and RC2(y) is 10.3125x + 12.175y, (Cost*no. of units)]
Total Revenue calculation:
RC1(x) RC2(y)
Selling Price per unit 20 23
Total Revenue 20x+23y

1) Break Even Analysis:


A break-even analysis is to determine the breakeven point where total revenue received equals the total
cost. There is no net loss or gain at the breakeven point.
Total Revenue = Total Cost (Breakeven point formulae)
20x + 23y = 10.3125x + 12.175y + 1,31,000 (Equating the equations from above)
9.6875x + 10.825y = 1,31,000
9.6875(2y) + 10.825y = 1,31,000 (Putting x = 2y as the number of units of RC1(x) is double that of RC2(y))
30.2y = 1,31,000
y = 4337.74
x = 2y = 4337.74*2 = 8675.49
Therefore, we come to the conclusion that for break-even point Breeden Electronics USA needs to sell 8,675 units of
RC1 and 4,337 units of RC2 such that there is no net loss or gain.

2) Given Target Profit 2,10,000 (Annual)


Total Revenue = Total Cost + Total Profit
20x + 23y = 10.3125x + 12.175y + 1,31,000 + 2,10,000/12 (Putting x = 2y)
20(2y) + 23y = 10.3125(2y) + 12.175y + 1,31,000 + 17,500
30.2y = 1,48,500
y = 4917.21
x = 2y = 9834.43
Therefore, we come to the conclusion that for achieving the target of 2,10,000 (Annual), Breeden Electronics USA
needs to sell 9,834 units of RC1 and 4,917 units of RC2.

3) Revenue and Profit


a) At Breakeven
x = 8675.49 , y = 4337.74
Total Sales
= 20*8675.49 + 23*4337.74 = 273277.90
Variable Cost
RC1: 8675.49*10.3125 = 89466
RC2: 4337.74*12.175 = 52812
Total Variable Cost = 142277.90
Sales 273277.90
(-)Variable Cost (142277.90)
Contribution 131000
(-)Fixed Cost (131000)
Profit 0

b) At targeted profit
RC1 = 9834.43
RC2 = 4917.21
Total sales = 9834.43*20 + 4917.21*23 = 309784.43
Variable Cost
RC1 = 9834.43*10.3125 = 101417.559
RC2 = 4917.21*12.175 = 59867.0317
Total Variable Cost = 161284.59
Sales 309784.43
(-)Variable Cost 161284.59
Contribution 148499.84
(-)Fixed Cost 131000
Profit 17499.84(approx.) or 17500

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