BW Manufacturing Company Case Study Solution

Introduction

The BW Company established by Oliver Blanchard Inez Wallace is a manufacturing company that primarily manufactures gas grills of three models that have shown positive growth over the years (Allen, 2009). The company’s operations are diversified and are strongly competent in the grills manufacturing industry. The company is considering reducing its grill variants' prices as external factors are influencing the company’s expenses negatively. As the competition is high BW needs to evaluate the manufacturing and sales operations of the company.

Financial Impact of All (4 Options)

Option 1: Costs of Dropping Production of Grill A

Referring to the analysis of the dropping production of Grill A it is perceived that the revenues were dropped from $46,225,000 to $29200000 as calculated in the exhibit. The gross margin also declined and the operating income calculated was $1310000. Moreover, the net income turned out to be negative at about ($1298000). Therefore it is suggested that to maintain the company’s average running cost production of Grill A should not be stopped as it will pose serious consequences to the financial sustainability of the company.

Option 2: Reduction in Grill C’s Price and Expecting Increment in Production Units

After considering the reduced price of Grill C which is $75 and the expected increase in the units of production by 20000 it is discovered that the drop in price by $5 increased the sale by $500000. The total cost of production was also observed to be increased by $320000. Moreover, it appears to be a positive effect as the net sales also increased by $180000. Therefore it is suggested that BW Manufacturing Company should reduce the price of Grill C.

Option 3: BW Change its Advertising Focus

In this option, the organization looks to change its advertising focus for two models Grill A and Grill C. It presents that BW Manufacturers consider changing the production volume for both models. There is an increase in production volume by (10,000) units in the Grills C model and also a decrease in the production volume by (10,000) units in Grill A. Using this information with the given data in (Exhibit 2) helps to calculate the change in volume and change in profit for both models.

The observation after analyzing option 3 presents that the gross profit for both models decreases by ($260,000) with which Grill A's gross profit is down by ($880,000) and Grill C's gross profit increase by ($620,000). The high value of decreasing Grill A model impact combine profit, which means that this option is not appropriate for the organization, and changing its advertising focus toward this option is not beneficial.

Option 4: BW Lower the Price of Grill C and Change Advertising Focus

This option of BW Manufacturers presents that the organization changes its advertising focus again with new changes. In this option, the Grills C price become down from $80 to $75 and it also presents a shift in production volume. The production volume of Grill A again decreased by (10,000) units and the production volume of Grill C increased by (30,000) units. For further calculation use the data from Exhibit 2 for the cost structure that impact both models. All the direct and indirect costs are calculated similarly to the previous option.

The changing price of Grill C and changing production volume for both models present that the organization again faces a reduction in revenues and operating income with the combination of both models. The operating income before changing the advertising focus is about ($12,400,000) and now it is about ($12,230,000), which presents a difference or decrease in income by ($170,000) with (1.37%). This result and calculation present that this option is not appropriate for the organization.

Revised 2009 Profit Budget (Assuming Option 2)

For the preparation of the 2009 revised profit budget using the Exhibit 1 operating budget of 2009. It presents the income and cost that relates to the previous production volume for all three grill models. Preparing a revised profit budget assuming option 2 in which Grill C's selling price decrease to ($75) and the production volume increase by (20,000) units.

After changing the price and volume it presents ($41,700,000) in sales in the year 2009 with the combination of all models. The net income under the revised budget is about ($4,842,000), which is higher than the previous operating budget income. All the costs remain the same for the revised profit budget such as interest expense, SG&A expense, and taxes. It presents that option 2 helps the business to increase its sales and gross profit as compared to the original level.................

BW Manufacturing Company Case Study Solution

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