05 Jun Question MBA 6100 Case #1 C-V-P and BE analysis, multiple product
Question
MBA 6100
Case #1
C-V-P and BE analysis, multiple product
NCP, Inc. is a manufacturer and seller of small, inexpensive plastic housings and connectors used by a
variety of small engine and controls device manufacturers. The CFO of NCP is concerned about the
profitability for one segment of their product line; in particular three of NCPs most purchased plastic
housings. These products are sold in a very competitive market, so the company has strong pricing
pressure on the product lines.
The CFO is interested in a break-even and segment analysis for these three products:
Sales volume (units)
Unit selling price
$ VC / unit
VX1
100,000
$1.65
$1.25
MX2
200,000
$1.50
$0.70
NX3
400,000
$0.85
$0.25
Additional data related to these housings are as follows:
Total fixed expenses are $400,000 per year
o $240,000 of these fixed expenses are common fixed expenses consisting of
administrative salaries, rent, and depreciation
The company runs a lean manufacturing system so there is no beginning or ending inventories,
nor work-in-process inventory.
The CFO has asked for the following:
1. A prepared contribution margin statement for the overall product line comprised of the three
products:
a. What is the break-even point is sales dollars?
b. What is the overall contribution margin percentage for the product line?
2. What is the contribution margin (in $ and %) for each of the three products?
3. Given the current sales mix, what is the sales volume in units for each product at the overall
break-even point?
4. An analysis of the fixed expenses indicates that of the $400,000, $20,000 can be avoided if
product VX1 is dropped, $80,000 if MX2 is dropped, and $60,000 if NX3 is dropped.
a. Prepare a segment CM analysis statement showing the full product line and each of the
products:
b. What is the impact on net operating income under each of the three options:
i. dropping VX1
ii. dropping MX2
iii. dropping VX3
5. The CFO is requesting a memo (minimum of 300, maximum 500 words) on your analysis of the
current margin and profitability of these three products. In your memo include your
recommendation on the three products comprising this product line based on your analysis.
Recommendations may include pricing, cost, and sales stimulus activities. Include analysis data
where appropriate to support your recommendation to the CFO.
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