Alexis Mari O.

Catausan

BSA-IV

Junel E. Flancia

Group 5

Case 6-1 BULAKLAK FILMS, INC.

EXECUTIVE SUMMARY

The company is determining on how BFI can keep up with the increasing competition in
the film processing industry. They are also making a decision whether BFI will consider
lowering its rates, changing its wage policy from fixed per month to per footage basis, and
making the companys credit extension policy more liberal to address the needs of the cash-short
local movie producers without hurting its bottom line. It is recommended that the company
should price its services to a lower rate than what the competitor is offering to be able to
maintain a market share in the industry. The potential increase in sales for the coming years as a
result of that can more likely cover up for the lost revenues due to the decrease in price. As
regards the wage policy, it would be better for the company to maintain status quo and not to
shift into the per footage basis computation of wage. This is more favorable to the company since
there is more than insignificant increase in the volume of films processed for the past two years.
Meanwhile, regarding the overhead cost allocation, it is deemed more appropriate to base the
allocation on the normal running time of the processors rather than based on the revenue
contribution of each process to avoid potential cost distortion.

Background
Bulaklak Films, Inc. (BFI) exhibited satisfactory growth and a position of dominance in the film
processing industry during the past years but is now faced with the problem of increasing
competition among the firms in the said industry. To address this problem, BFIs Finance
Manager, Mr. Buddy Ortiz, was asked by the President to prepare a performance analysis of the
companys four profit centers: the black and white negative processing, black and white positive
processing, color negative processing, and color positive processing sections. The color film
processing was once monopolized by the company through intensive research and training of
BFIs technical staff until other competitors offering lower prices entered the industry. Due to the
possible price war within the industry, Mr. Ortiz was asked to analyze the companys elbow
room.

Assumptions:

The forecast was based on the historical demand per month during 1994 and first two
months of 1995.
The normal volume of production is the average volume of demand per month during
1993 and 1994.
One copy is equal to 12 rolls and each roll is a thousand feet long.
Labor cost is fixed and overtime pay is not taken into consideration due to lack of
available data.

Methodology
A forecast of the volume of films to be processed for the year 1995 was made first in
order to determine the trend of the incoming demand for the company. It was concluded
thereafter that the volume will steadily increase for all the four profit centers. Next, the normal
volume of production was assumed to be the average of the volume of films processed per month
for the past 2 years. This normal volume per profit center was used to compute for the companys
actual processing and printing costs that includes direct materials, direct labor and overhead
costs. Direct materials for black and white and color film processing includes all the cost of
chemicals while direct labor includes wages paid to personnel directly working in the processing
and printing process. Direct labor also comprises salaries paid to operators, mixers, timers,
printers and projectionists. Overhead costs compose indirect materials, salaries paid to other
personnel and other expenses.

Analysis and Conclusion

1993
FIXED
Cost of
Production
Wages and
Salaries
Processor
Operators

1994
PER
FOOTAGE

FIXED

PER FOOTAGE

4,473,180

4,473,180

6,631,867

6,631,867

230,400

209,455

230,400

276,480

Chemical Mixers

115,200

96,000

115,200

138,240

Timers

168,000

164,706

168,000

201,600

Printers

172,800

157,091

172,800

190,080

Filter Arranger

72,000

71,287

72,000

78,480

Projectionist
Total Wages
and Salaries

57,600

52,364

57,600

63,360

816,000

750,902

816,000

948,240

TOTAL COST

5,289,180

5,224,082

7,447,867

7,580,107

Bulaklak Films, Inc. currently implements a fixed salary policy, and it is still advisable to
continue such policy. Looking at the derived normal or average volume of films processed for
the past two years and the forecasted trend, there are a greater number of months processing a
higher than average volume of films than months processing below average volume of films. The
basis for the variable wage policy or per footage wage policy is the volume of films processed
while the fixed salary policy will always remain constant regardless of the volume of films
processed. Thus, it is evident that the variable policy will be more costly if the volume of films
processed are increasing, and the fixed policy will be more advantageous if more volume of
films are able to absorb the unutilized labor costs in the months that process films below the
average volume. Assuming the fixed and the variable rate equal at the normal volume of films
processed per month, the per footage salary policy tends to be more expensive for there are more
months processing an above average volume of films.
Hence, it is more favorable for the firm to carry on with their present salary policy. Fixed
rate policy would be economical since the salaries paid would be constant even if the volume of
films processed generate an increasing trend. The firms overhead costs are presently allocated
according to the departments individual contribution to revenue. However, it is recommendable
to use the normal running time of the processors as their allocation base. Seeing that the firms
operations are geared towards the use of various machines or processors in the processing of
films, then it is most appropriate to allocate overhead in accordance with the normal running
time of the processors. Nevertheless, overhead costs that are particularly attributable to a specific

department must be allocated to that department. Ultimately, it is recommendable that BFI price
its services to a lower rate than what their competitor is offering. Both companies basically offers
the same services; therefore, fees would be a big factor in attracting more clients and a gaining a
greater market share. A sudden decrease in their present fee would naturally decrease their
revenues; nonetheless, this loss can be eventually be recovered by a larger volume of sales. In the
current situation, BFI must set its pricing scheme lower than their competitors to compete in the
industry.