"Good afternoon gentlemen," Vicki began addressing Carlos and Gary. "I know you have been busy with your Chicken Sensations assignments. My goal today is to discuss the information you have gathered so that we can put together the initial feasibility analysis that Richard wants. I will record and summarize the information you provide. Carlos, what did you determine about pricing and other expected costs associated to launch Chicken Sensations?" "First, I looked at comparable frozen convenience food products with package sizes ranging from 20 to 30 ounces, the retail price per ounce is from $0.16 to $0.20or $3.20 to $6.00 per package. Since I expect consumers to assign a higher nutritional value on Chicken Sensations than other products, I suggest we target a retail sales price of $0.1875 per ounce or $3.75 per bag for a 20-ounce bag. With retailersrequiring a minimum 20% gross margin for new products, I recommend that our selling price to them be $3 per bag or $36 per case of 12." Carlos further explained some of the sales expenses and other expected costs, "To encourage consumer trial of Chicken Sensations, we will have to offer coupons of $0.20 per bag or $2.40 per case for all cases sold in the first year. To gain access to convenience frozen food distribution channels, we will have to pay a brokerage commission of 6% of our sales price. In addition, retailers (in total) require a one-time slotting allowance of $6 million to purchase shelf space." Vicki noted that the slotting allowance costs would need to be expensed in the first year. Continuing, Carlos explained estimates for other costs: "Package design costs for artwork and photography expected to be $2 million will have to be paid in the first year. To support Chicken Sensations, we will need to hire additional salespeople at total annual cost of $400,000. I anticipate we will sell 65,000 cases in the first month with sales increases of 15,000 cases per month for the first year when we will reach a maximum of 230,000 cases per month." "Great. Before we discuss the production and cost assumptions, Gary do you have any questions for Carlos?" Vicki asked. "Thanks for asking. I do have a few questions. Based on your comments, it looks like our case configuration would be 12, 20-ounce bags or a 15-pound case. Is that correct, Carlos?" Gary questioned. "Yes, I feel a 20-ounce bag allows for us to be competitive on a price per ounce with other convenience frozen food products," Carlos clarified. "That package size works great. We anticipate producing Chicken Sensations at the Oakdale facility where we already make spaetzels and have the capability and capacity to package 20-ounce bags. Are you comfortable with your sales forecast? As I recall, the sales forecast for Soup-in-a-Flash was overly optimistic, causing us to over-produce a product that never sold." Gary said. "Yes, I am confident, Gary," Carlos replied tersely, "I am not certain if you are aware that prior to joining PFVC, I successfully introduced several new frozen pizza products at another company. The forecast I provided is consistent with first-year sales volumes for those new products. In my experience, for new product introductions, sales forecast errors are generally incorrect by 25%, so I would plan for sales to range from 75% to 125% of my forecast." "Awesome, one more question," Gary interjected. "Carlos, what are consumers' expectations about the amount of protein to be included?" "For frozen pizza, consumers expect no less than 10% protein content. If the protein content (e.g., chicken, beef, pork) exceeds 20%, consumers are unwilling to pay the increased price for the product. Since we want consumers to have an initial positive impression of our product, I recommend we include 20% chicken, 65% vegetables, and 15% spaetzels for Chicken Sensations." "Thanks, Carlos. That works great. If anything, I presume once we have consumer acceptance of Chicken Sensations we might substitute vegetables at $0.50 per pound or spaetzels at $0.15 per pound for chicken at $2.00 per pound to increase our profits," Gary finished. "Carlos, thanks for addressing Gary's concerns. Now let's discuss the production and cost inputs," Vicki commented. "Sure, Vicki. Based on the case configuration of 12, 20-ounce bags, packaging cost will be $0.20 per bag for shipping to retailers. Each cardboard shipping box has a cost of $0.30 per box. At our processing facility, direct labor and variable manufacturing overhead costs per pound are $0.30 and $0.40, respectively. To retrofit the facility for USDA compliance, I anticipate spending an additional $2 million, which we will depreciate over five years with no salvage value," Gary summarized. "I have everything I need from you," Vicki commented. The data Vicki gathered from Carlos and Gary are presented in Table 1. "I should be able to prepare the preliminary financial feasibility analysis within the next few days. When we meet with Richard, I am confident he will want to discuss the impact of your assumptions on the financial feasibility of Chicken Sensations. When we are done with our meeting with Richard next week, I anticipate he will request a meeting with Parson's corporate executives to review our plans and request permission to launch Chicken Sensations. I am excited about the potential for Chicken Sensations. It's nutritious and tastes good, too. Thanks, again. See you soon."