Lee Wong General Sales Manager.
Sandra Stiletto Administrative Assistant to President.
Representatives attended the meeting from manufacturing, sales, purchasing and product engineering along with the president's AA (see Exhibit 1). Hannibal introduced Gump who distributed copies of his report including a breakeven chart (see Exhibit 2). Gump described his methodology and explained how the chart pointed to a profitable year if the sales volume achieved in the past continued. Apparently, some of the participants knew of Gump's presentation in advance and were prepared to challenge him. Soon they took control of the meeting. The following exchange ensued:.
Jack Welch: Harvey, Why haven't you allowed for our planned volume changes for next year? You should have allowed for the sales department's estimate of approximately a 20% increase in unit sales. If true, we'll be getting close to 90% of capacity. Wouldn't this make quite a difference in your calculations?.
Harvey Gump: That might be true, but as you can see, all you have to do is read the cost and profit relationship right from the chart for the new volume. Let's see.
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Ted Williams: Hold on! If you're talking in terms of almost 90% of capacity, you must see that we'll be spending more for the plant. We've already received approval on investments that boost fixed costs by almost another $90,000 a month. And while we may call it approximately 90% of plant capacity, there are many areas where we're already at capacity. .
Jack Welch: Ted's right. Furthermore, based on information from your department, I don't believe your breakeven chart is useful even if there are no changes next year. You"re using average figures that ignore the fact that we produce and sell three product lines. The report on each line's costs last year makes it clear that the "average" is out of line (see Exhibit 3). What would be the breakeven point on an individual product basis? .
