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Bridgestone

In: Business and Management

Submitted By andrewdean
Words 1377
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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
$3,500,000 – 3,493,700 = $6,300
Yes, they are able to plan for break-even and even a modest profit in the next year. There are factors that could change the profitability of Bridgestone. Some factors I would try to change or manage closely in order to increase profit are:
Decrease employee salary expenses
Decrease discretionary fixed costs
Increase and maintain the level of service volume
Reduce variable costs
Increase service rates
Setup off-campus programs 4. A useful component of CVP analysis is the margin of safety for service revenue that can be calculated as a dollar amount or as a percentage. What is Bridgestone’s projected margin of safety for next year? Interpret your answer in terms of what it means to Dr. Russell.
Margin of safety = total expected sales – break even
$5,000,000 – 4,991,000
Margin of safety = $9,000
Margin of safety % = 9,000/5,000,000 = .18%
Dr. Russell should focus on increasing the contribution margin and decreasing the fixed and discretionary expenses. The margin of safety for Bridgestone is very small, which means that there is not a lot of cushion between break-even and profitable…...

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