Economic feasibility analysis:
Perform an economic costbenefit analysis of whether PFVC should launch Chicken Sensations. Clearly state your decision and conclusion from your analysis. (You can use an Excel spreadsheet to complete these tasks in an organized, neat appendix to your case analysis. A reader of your case should be able to follow your work and computations. The results of your appendix analyses can be referenced in the body of your case to support your decision.) To aid your analysis, perform the following tasks:
E. Sensitivity analyses: Prepare sensitivity analyses to examine how robust year 1 results are to changes in projections for (1) the sales volume of cases, (2) the sales price per bag, and (3) the cost per pound of chicken. Assume that these amounts can change for three different projection levels as reported in Table 2: (1) a pessimistic level, (2) the original level, and (3) an optimistic level. Table 2 shows that the sales volume (in cases) will be 75% of the original year 1 sales forecast, the sales price per bag will only be 90% of the original forecast (or $2.70/bag = $3.00/bag 90%), and the cost per pound of chicken will rise to 112.50% of the original forecast (or $2.25 /lb. = $2.00/lb. 112.50%) for the pessimistic level. The original level reports the results using the original projections in the case. Under the optimistic level, the sales volume forecast (in cases) will be 125% of the original year 1 sales forecast, the sales price per bag will increase to 110% of the original forecast (or $3.30/bag = $3.00/ bag 110%), and the cost per pound of chicken will decrease to 87.50% (or $1.75 /lb. = $2.00/lb. 87.50%).
Report your sensitivity analysis results in Table 3.
THE CHALLENGE THE OPPORTUNITY Parson Foods Vegetable Company (PFVC) is a newly Richard knew he and his team faced many challenges. In recent months, they had been working on operational and structural created, wholly owned subsidiary of Parson Foods, one of the oldest and largest fluid milk processors in the United States. Parson was founded in 1925 and grew through a series of acquisitions, first in milk processing and later in frozen and canned vegetables. changes designed to reduce administrative and selling costs. He also realized that continuing the turnaround requires the firm to improve sales of continuing and new products. Several months ago, Carlos Rico, the company's marketing manager, approached Richard with an idea for a Parson's operating strategy was to provide capital and management expertise to acquired entities while giving local revolutionary nutritious convenience frozen food product. management significant decision-making autonomy. This strategy worked well with fluid milk processors who tended to compete in local or regional areas. As Parson moved into The new product, Chicken Sensations-consisting of frozen vegetables, spaetzels (a coated seasoned pasta), and chicken-would compete against frozen pizza and microwaveable dinners. Based on initial projections, Chicken Sensations had the potential to be a homerun with company sales, expected to increase by 20% and with gross margins double current vegetable offerings. canned ve s, it increasingly found that these firms were competing nationally. Multiple vegetable companies under the Parson Food umbrella were competing | for the same business, often undercutting one another on price to "win" business. These activities threatened financial While the potential for Chicken Sensations was palpable, Richard was a realist given PFVC's history of new product introduction. The most recent, Soup-in-a-Flash-a microwaveable soup starter kit-failed miserably with the performance, resulting in lower profits and even losses in many of these vegetable companies. Parson's management decided that a strategic change was needed to return its vegetable companies to profitaility. company writing off $10 million in unsold finished goods. This resulted in the creation of PFVC where all the vegetable companies were consolidated. Richard Lawson was named CEO of the new company. His cha improve the lagging performance in the vegetable group. Changes were expected and fast. Richard and his new executive team were feeling the pressure to find a way to turn this thing around." As a result, corporate executives were not enthusiastic about investing in another PFVC new product launch. Richard mused, "If Chicken Sensations fails, my tenure as CEO may be short-lived." rge was t THE CHALLENGE THE OPPORTUNITY Parson Foods Vegetable Company (PFVC) is a newly Richard knew he and his team faced many challenges. In recent months, they had been working on operational and structural created, wholly owned subsidiary of Parson Foods, one of the oldest and largest fluid milk processors in the United States. Parson was founded in 1925 and grew through a series of acquisitions, first in milk processing and later in frozen and canned vegetables. changes designed to reduce administrative and selling costs. He also realized that continuing the turnaround requires the firm to improve sales of continuing and new products. Several months ago, Carlos Rico, the company's marketing manager, approached Richard with an idea for a Parson's operating strategy was to provide capital and management expertise to acquired entities while giving local revolutionary nutritious convenience frozen food product. management significant decision-making autonomy. This strategy worked well with fluid milk processors who tended to compete in local or regional areas. As Parson moved into The new product, Chicken Sensations-consisting of frozen vegetables, spaetzels (a coated seasoned pasta), and chicken-would compete against frozen pizza and microwaveable dinners. Based on initial projections, Chicken Sensations had the potential to be a homerun with company sales, expected to increase by 20% and with gross margins double current vegetable offerings. canned ve s, it increasingly found that these firms were competing nationally. Multiple vegetable companies under the Parson Food umbrella were competing | for the same business, often undercutting one another on price to "win" business. These activities threatened financial While the potential for Chicken Sensations was palpable, Richard was a realist given PFVC's history of new product introduction. The most recent, Soup-in-a-Flash-a microwaveable soup starter kit-failed miserably with the performance, resulting in lower profits and even losses in many of these vegetable companies. Parson's management decided that a strategic change was needed to return its vegetable companies to profitaility. company writing off $10 million in unsold finished goods. This resulted in the creation of PFVC where all the vegetable companies were consolidated. Richard Lawson was named CEO of the new company. His cha improve the lagging performance in the vegetable group. Changes were expected and fast. Richard and his new executive team were feeling the pressure to find a way to turn this thing around." As a result, corporate executives were not enthusiastic about investing in another PFVC new product launch. Richard mused, "If Chicken Sensations fails, my tenure as CEO may be short-lived." rge was t
