Issues for Discussion 1. What is the weighted average contribution margin (WACM) percentage for Bridgestone’s next annual budget?
WACM = Contribution Average/Total Revenue WACM = $3,500,00/5,000,000 WACM = 70% 2. What does a high weighted average contribution margin (WACM) percentage mean for the management of Bridgestone?
3. Is Bridgestone able to plan for breakeven or a modest over-recovery of expenses (or profit) for the next year? If the center achieves breakeven or a modest over-recovery and you are concerned about events that could cause a potential loss, what would you try to change? (You may consider both on- and off-campus programs.)
Break-even = Fixed Cost/WACM
$3,493,700/70% = $4,991,000
Profit = CM – FC
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5. Fixed costs can be discretionary or committed. Using your judgment based on the discussion in the case, identify which costs are likely to be discretionary. Assuming that management is able to decrease discretionary fixed costs by 10%, what would be the impact on Bridgestone’s break-even point revenues? Fixed Costs | Original Amount | Committed or Discretionary | | New Amount | Salaries & Benefits | $1,327,607 | Discretionary | -10% | $1,194,846 | Consulting Fees | $174,685 | Discretionary | -10% | $157,217 | Rent | $419,244 | Committed | | $419,244 | Transportation | $104,811 | Discretionary | -10% | $94,330 | Office Supplies | $69,874 | Discretionary | -10% | $62,887 | Deprecitaion | $873,424 | Committed | | $873,424 | Other | $524,055 | Discretionary | -10% | $471,650 | New Fixed Costs | $3,493,700 | | | $3,273,598 | | | | | |
New break-even point = new fixed costs/WACM
$3,273,598/70% = $4,676,568.50
Change in Break-even $4,991,00 - $4,676,568.50 = $314,431.50 6. As Bridgestone operates during the next year, do some services deserve more attention than others? (hint: what is their relative contribution to the WACM % and to the total contribution margin? Which services? | Assessment | Urinalysis | Case Management | Group Counseling | Individual Counseling | Crisis Intervention | Intensive Outpatient | Meidcal Somatic | Methadone
Total contribution needed to cover the old fixed costs + new fixed cost + profit is just the three factors added together.
Since our company’s main focus is premium products we will aim for high contribution margins, around 50%, on average, over all five products. After establishing our company brand and products within the market we will look to increase contribution margin to be between 55%-60% over all five products.
8.20 equals $ 86,700. The contribution margin per unit at a retail price of Cr. 6.85 equal 1.95. The required volume will be the result of dividing the profit impact on the contribution margin per unit.
* If the contract were to require new fixed costs in addition to variable costs at 10 % the total Margin cost would be $ 79,524 which would be a substantial increase of $8,056 from question 1
* The WACM% helps us to control the actual operations of Bridgestone as it allows us to see which service provides a higher rate of contribution & which leads to a deficit. This information would help Bridgestone to promote certain services like Urinalysis, Individual & Group Counselling through advertisements and other promotional activities. Moreover, the individual contribution margin allows us to see how each category is performing.
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If Marlene Herbert were to discontinue place mats, he would miss $270,000 that will go toward Mendel paper company fixed cost. The company currently has a plant overhead that is estimated at $420,000 for the quarter. In addition to the fixed plant overhead, the plant incurs fixed selling and administrative expenses per quarter of $118,000. This draws the company to a total fixed cost of $538,000. If Marlene Herbert were to discontinue the second highest contributor to the fixed cost, he would need to increase the volume of computer paper and lower material cost to help pull the contribution margin of the lowest product up to help support the lost of a whole product line.
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