Question

OSCM 3344 Assignment 12 - New Product Pricing You assignment is to calculate the cost, selling price and profitability of a new, dry cereal product: Rootie Tootie Frooties. Costs are to be calculated for: Ingredients Packaging Direct Labor Overhead (supervision, maintenance, NRG, depreciation, admin & general, employee benefits, insurance, taxes) Annual sales forecast = 12,500,000 cases, each case containing 12 boxes; each box contains 10.5 ounces, net weight. Two (2) production lines. Production schedule = two (2) eight (8) hour shifts; 16 production hours per day. Five (5) days per week; M-F, 10 holidays (shut down), 52 weeks per year. No overtime. Cost of Ingredients per 10.5 ounce box of cereal: Wheat Flour: $0.078 Sugar: $0.021 Vitamins: $0.050 Coloring: $0.015 Cost of Packaging per 10.5 ounce box of cereal: Inner liner: $0.016 Decorated box: $0.098 Corrugated shipping case: $0.080 Glue: $.002 Hourly Labor required per shift to produce Rootie Tootie Frooties: 1 material handler 2 mixing tank operators 2 drier operators 2 quality insurers 4 carton erectors 2 caser operators 1 palletizer operator 1 take-away driver Average Labor Rate per Hour = $17.00 Overhead per case containing 12 boxes = $1.675 Gross Margin Target = 50% of sales revenues You are to calculate: 1. How many cases per minute must be produced per production line to meet the annual sales forecast? Disregard any inventory; assume JIT. 2. Total Cost Per Case containing 12 boxes (TC): 3. Selling Price per case to yield a 50% profit margin (SP) 4. Selling price per ounce of cereal 5. Pre-tax profit margin $ amount per case (SP – TC) 6. Pre-tax profit margin $ amount per year

Answer 1

	Rootie Tootie Frooties
	A. Annual sales forecast in cases	12500000		Material cost/box
	B. Each case contains 12 box	12		Wheat Flour:	0.078		1 material handler
	C. Total Box (A*B)	150000000		Sugar	0.021		2 mixing tank operators
	D. Each box weight in ounce	10.5		Vitamins	0.05		2 drier operators
	E. Total Ounce (D*C)	1575000000		Coloring	0.015		2 quality insurers
	F. Total working days (5days/week, 52 weeks)	260		Inner liner	0.016		4 carton erectors
	G. 10 holidays (shut down), total working days	250		Box	0.098		2 caser operators
	H. 16 hours/day	16		shipping case	0.08		1 palletizer operator
	I. Total working hours/yr	4000		glue	0.002		1 take-away driver
	J. Overhead cost/case	1.675		Total Material cost/box of 10.5 ounce (Addition of all costs)	0.36		Total Labour/hour	15
	K. Number of cases to produce/hour to meet annual sale (A/I)	3125		Total Material cost/case (Total material cost/box*12)	4.32		rate/hour	17
Q1	L. Number of cases to produce/minute to meet annual sale (K/60)	52.08					Total labor cost/hour (15*17)	255
	M. Material cost/case	4.32
	N. Labour cost/case (hourly labor cost/number of cases to produce per hour)	0.0816
	O. Over head/case	1.675
Q 2	P. Total cost of good sold (M+N+O)	6.0766
	Q. Profit margin	50%
Q 3	R. Selling price (P/Q)	12.1532
	S. 1 case contains (12 box*10.5 ounce)	126
Q 4	T. Selling price/ounce (R/S)	0.09645397
Q 5	U. Profit margin/case (R-P)	6.0766
Q 6	V. Profit margin/year (profin margin/case*sales plan for number of case)	75957500