DETERMINATION OF FINANCIAL VIABILITY OF PRODU

Particulars Classic Shirt Premium Shirt

Retail Selling Price $75.00 $95.00
Less : Variable Costs
Tailoring Costs $7.50 $9.25
Shipping Costs $48.50 $58.75
Contribution per unit $19.00 $27.00
Targetted Contribution $25,000.00 $25,000.00
No. Of Units to be Sold $1,315.79 $925.93
Rounded Up $1,315.80 $926.00
Per cent of Total Sales 5 15
98685 87970

ESTIMATION BASED ON THE HISTORY

Particulars Classic Shirt Premium Shirt
Total Sales $600,000.
Percentage of Sales 5% 15%
Amount of Sales $30,000.00 $90,000.00

No. Of Units to be sold * Selling Price per

unit = Targeted Contri $98,685.00 $87,970.00

AFTER DROPPING CLASSIC SHIRTS , ESTIMATION IS AS FO

Classic Shirt Premium Shirt
TOTAL SALES 600000
% OF SALES 5% 15%
Modified Sales Volume in Amt $94,736.84

CALCULATION OF CONTRIBUTION MA
Particulars Classic Shirt Premium Shirt
Retail Selling Price $75.00 $95.00
Less : Variable Costs
Tailoring Costs $7.50 $9.25
Shipping Costs $48.50 $58.75
Contribution per unit $19.00 $27.00
Contribution Rate 25.33% 28.42%
Variable Cost Rate 74.67% 71.58%

Particulars Classic Shirt Premium Shirt

Total Sales $600,000.
Percentage of Sales 5% 15%
Amount of Sales $30,000.00 $90,000.00
Contribution Rate 25.33% 28.42%
Contribution in Amt $7,600.00 $25,578.95
(Discontinued Product Contri)

PRICE INCREASE OPTION for CLASSIC SHIRT

Particulars Existing Assume 1
Selling Price $75.00 $90.00
Variable Cost / unit $56.00 $56.00
Contri / unit $19.00 $34.00
Contribution Rate 25.33% 37.78%
Annual Contribution On Total Sales of the
product line $7,600.00 $11,333.33

REDISTRIBUTION OF REMAINING LINES

Particulars Premium Shirt Executive Shirt
Existing Amt of Total Sales $90,000.00 $90,000.00
% of Projected Annual Sales 15.79% 15.79%

If the classic shirt is withdrawn then the revenue of 30k from Classic shirts
has to be borne by the remaining product lines

BREAKEVEN ANALYSIS WITHOUT THE CLASSIC SHIRT

PRODUCT LINE
Particulars Amount
Weighted Average Selling Price $473.68
Weighted Average Contribution $299.95
Weighted Average Margin 63.32%
Additional Fixed Cost on Marketing 5000
Targeted Margin from the discontinued
Product $7,600.00
Total $12,600.00
Breakeven Sales to Recover $19,898.23

1. Decision on continuing with the product. - Drop the pr

2. Reason for the Decision - ( Increase in the price option
3. Second best alternative solution taken (We dropped th
4. Hint : for the alternate Solution from the case. ( It is m
contri margin would be the best way to evaluate the de
5. Why additional cost on marketing cannot be allocated
dropped and discontinued , the cost cannot be allocated
6. Final Solution arrived and logic behind the estimation.
breakeven sales is 19898 dollars , the additional contri o
dropped and discontinued , the cost cannot be allocated
6. Final Solution arrived and logic behind the estimation.
breakeven sales is 19898 dollars , the additional contri o
ON OF FINANCIAL VIABILITY OF PRODUCTS
Executive Shirt Coat Classic Suit Premium Suit Executive Suit No of Units to be Sold = Targe
$125.00 $395.00 $475.00 $625.00 $850.00

$10.75 $28.35 $25.50 $29.00 $33.10

$69.25 $181.65 $163.50 $186.00 $211.90
$45.00 $185.00 $286.00 $410.00 $605.00
$25,000.00 $25,000.00 $25,000.00 $25,000.00 $25,000.00 Solution :
Better Solution is to drop the Classic S
$555.56 $135.14 $87.41 $60.98 $41.32 sales , which is 3 times of the current
$555.60 $135.20 $87.50 $61.00 $41.40
15 10 15 15 25 Managerial Implications :
69450 53404 41562.5 38125 35190 The Classic Shirts product line isn't fin
discontinued in order to not overexte

MATION BASED ON THE HISTORY

Executive Shirt Coat Classic Suit Premium Suit Executive Suit
$600,000.00
15% 10% 15% 15% 25%
$90,000.00 $60,000.00 $90,000.00 $90,000.00 $150,000.00

$69,450.00 $53,404.00 $41,562.50 $38,125.00 $35,190.00

CLASSIC SHIRTS , ESTIMATION IS AS FOLLOWS

Executive Shirt Coat Classic Suit Premium Suit Executive Suit
600000
15% 10% 15% 15% 25%
$94,736.84 $63,157.89 $94,736.84 $94,736.84 $157,894.74

CALCULATION OF CONTRIBUTION MARGIN RATE

Executive Shirt Coat Classic Suit Premium Suit Executive Suit Contribution Margin rate = Selling Pr
$125.00 $395.00 $475.00 $625.00 $850.00 unit / selling price price

S-VC/S
$10.75 $28.35 $25.50 $29.00 $33.10
$69.25 $181.65 $163.50 $186.00 $211.90 Variable Cost = 1-Contri Rate
100-Contri Rate
$45.00 $185.00 $286.00 $410.00 $605.00
36.00% 46.84% 60.21% 65.60% 71.18%
64.00% 53.16% 39.79% 34.40% 28.82%

Executive Shirt Coat Classic Suit Premium Suit Executive Suit

Least contri is of Classic Shirt , whic
is much lesser than the targetted
contri.
 Least contri is of Classic Shirt , whic
$600,000.00 is much lesser than the targetted
15% 10% 15% 15% 25% contri.
$90,000.00 $60,000.00 $90,000.00 $90,000.00 $150,000.00
36.00% 46.84% 60.21% 65.60% 71.18%
$32,400.00 $28,101.27 $54,189.47 $59,040.00 $106,764.71

HIRT
Price increase option is also not possible for the Classoc shirt because it
Assume 2 still doesn't meet the targeted contri.
$100.00
$56.00
$44.00
44.00%

$13,200.00

ON OF REMAINING LINES
Remove Classic Shirt sales from 600000 ,
Coat Classic Suit Premium Suit Executive Suit which is 570000. (-30000)
$60,000.00 $90,000.00 $90,000.00 $150,000.00 and Distributed that to all the remaining
10.53% 15.79% 15.79% 26.32% clothing lines

venue of 30k from Classic shirts

ines

ntinuing with the product. - Drop the product ( It is decided to drop the product)
Decision - ( Increase in the price option was not a feasible option as still it wouldn't meet the target)
ternative solution taken (We dropped the product and reditributed the contri to the remaining product lines)
lternate Solution from the case. ( It is mentioned in the case that the propreitors felt the weighted average
ould be the best way to evaluate the decision feasibility )
l cost on marketing cannot be allocated for discontinued product ( When the activity of the entire product is
continued , the cost cannot be allocated )
arrived and logic behind the estimation. ( By taking the weighted avg contri margin it is found that the
is 19898 dollars , the additional contri of 12600 can be recovered by making the sales of 19898.23 Dollars.)
continued , the cost cannot be allocated )
arrived and logic behind the estimation. ( By taking the weighted avg contri margin it is found that the
is 19898 dollars , the additional contri of 12600 can be recovered by making the sales of 19898.23 Dollars.)
of Units to be Sold = Targeted Contri/Contri per unit

tion is to drop the Classic Shirt Product Line , as to reach the contri they need to sell almost 1 L of
h is 3 times of the current amount of sales.
Implications :
Shirts product line isn't financially viable , hence the product line has to be dropped and
d in order to not overextend their resources.

on Margin rate = Selling Price per unit - VC per

g price price

ost = 1-Contri Rate

Rate

tri is of Classic Shirt , which

esser than the targetted
tri is of Classic Shirt , which
esser than the targetted

because it

hirt sales from 600000 ,

-30000)
hat to all the remaining