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Mini Case #1
Body Products Division of World Wide Drugs

Benny Zheng, 100311672

ENTR 3120, S51
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May 18, 2017

Memo
To: Cheryl Kelly, president of the division
From: Benny Zheng, KPU student
Date: May 18, 2017
Subject: Analysis report about break-even point in unit of Vital Hair.

I have prepared this report to help you to have a better understanding about the business
operations situation and the break-even point in units regarding of the litigation cost.

I prepared two types of analyses, quantitative and qualitative. The quantitative analysis shows
that the company will reach the break-even point earlier (118,256 units less) if exclude the
litigation cost. However, the qualitative analysis mentions that some potential problems might
occur if excluding the litigation cost.

I recommend keeping Dibas report as the way it is, so that the executive committee can make
precise and better decisions. Also, Kelly and Diba wont have bear any personal risks due to
their unethical conducts.

I hope you will find this report helpful for making decisions about operations at WWD. If you
have any questions regarding of my report, please contact me at 778-960-9488 or
ruibin.zheng@email.kpu.ca. I am looking forward to having more conversations about this
report.
Table of Content
Executive summary........................................................................................................................4
Introduction.....................................................................................................................................4
Issues..............................................................................................................................................4
Data analysis..................................................................................................................................4
Decision Criteria..............................................................................................................................4
Alternatives.....................................................................................................................................5
Recommendation............................................................................................................................5
Appendix.........................................................................................................................................6

Executive summary
Kelly and Diba are about to make a presentation to the WWD executive committee on the
profitability of Vital Hair. In order to have a higher chance of getting the R and D funds approved,
Kelly wants Diba to prepare a report that excludes the litigation cost of $9.6 per treatment.
However, there are some potential problems that can not only cause troubles to Kelly and Diba,
but also to the company. I recommend including the litigation cost into the report.

Introduction
This report will explain the different alternatives regarding of the main issues with quantitative
analysis and qualitative analysis.

Issues
Kelly wants to exclude the $9.6 litigation cost, so that they can reach the break-event point
earlier and get the proposal approved. On the other hand, Diba thinks they should include the
$9.6 litigation cost into the report, because they could run into trouble if they dont. The report
will analyze the business operation under these two situations.

Data analysis
There are several significant numbers that affect the business operation. The bellowing will
explain the numbers and how that affect the business.
The proposal of producing the productVital Hair involves in two type of costs. Fixed cost is
one of the costs which will not change regardless of the production numbers. The $24,000,000
is the fixed cost that is associated with the development, production, and marketing of the
product. Another cost is variable cost; the cost that changes as the production number changes.
The $26.40, including the $9.6 litigation cost, is the variable cost of the product/service. Lastly,
there is a $66 sales price of the product, which is the amount that company will get if a product
is sold.
Decision Criteria
Break-even point in unit is the key criteria that affects the decision here. Because variable cost
would affect the outcome of the break-even point in unit, variable cost would also come into play
in the proposal. Therefore, the following analysis would analyze the outcome of the different
variable cost.
Alternatives
Alternative 1: Keep Dibas report for the presentation

Quantitative analysis
If Kelly and Diba include the $9.6 litigation cost, the variable cost for each treatment would be
$26.4; the revenue per treatment and fixed cost would stay unchanged respectively, $66 and
$24,000,000. With these costs and revenue, Kelly and Diba should reach the break-even point
when they sell out 606,061 units, (please see exhibit 1 for more detailed calculations).

Qualitative analysis
Advantage
Kelly, Diba, and the company will be in a comfort zone; no one will be running into
troubles
The report can help executive committee to make better decisions for the benefits of the
company

Disadvantage
Kelly and Diba might have a lower change of getting the proposal approved.

Alternative 2: Take Kellys advice to redo the report which excludes the litigation cost

Quantitative analysis
If Kelly and Diba exclude the $9.6 litigation cost, the variable cost for each treatment would
change to $16.8; the revenue and fixed cost would stay the same. In this case, Kelly and Diba
should reach the break-even point when they sell out 487,805 units, (please refers to exhibit 2).
Which is fewer units compared to alternative 1, (see exhibit 3 for more information).

Qualitative analysis
Advantage
Kelly and Diba might have higher chance of getting their proposal approved
If Kelly and Diba operate their plan properly, the company can make some profit

Disadvantage
Executive committee might not able to make the best decagons due to the missing
information
Kelly and Diba might be questioned by the executive committee about the unknown
expense (the litigation cost that didnt put into report) when the report doesnt meet the
actual expenses

Recommendation
With the both quantitative and qualitative analyses, I recommend the president of World Wide
Drugs, Kelly, to seriously consider keeping Dibas report for the presentation. Although the
quantitative analysis shows that taking Kellys advice to exclude the litigation cost would be
more likely to have the proposal approved, if the executive committee finds out the truth, Kelly
and Diba would face a lawsuit.
Appendix
Exhibit 1 Break-even point in units including litigation cost

Revenue $66
Variable Cost $26.4
Fixed Cost $24,000,000

cost
Break-even point in unit sold = Unit Contribution margin

24,000,000
= 39.6

= 606,061 units (606,060.61)

Exhibit 2 Break-even point in units excluding litigation cost

Revenue $66
Variable Cost $16.8i
Fixed Cost $24,000,000

cost
Break-even point in unit sold = Unit Contribution margin

24,000,000
= 49.2

= 487,805 units (487,804.88)

Exhibit 3 Difference of two situations break-even point in units

Break-even point in units include litigation cost break-even point in units exclude litigation cost
606,061 - 487,805 = 118,256 units
118,256 units in difference
i $24.6 - $9.6 = $16.8Original variable cost Litigation cost = Variable cost after changed