Hi. I have case study. I need the answers for part one only

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IMA EDUCATIONAL Case Journal Case Study The Association of Accountants and Financial Professionals in Business ISSN 1940-204X The Chicken or The Egg: Hatching a New and innovative Product R0176\" Rankin Martin Smear Texas Aid/l1 Commerce Bay/0r Univerrily THE CHALLENGE Parson Foods Vegetable Company (PFVC) is a newly created, Wholly owned subsidiary of Parson Foods, one of the oldest and largest uid milk processors in the United States. Parson was founded in 1925 and grew through a series of acquisitions, rst in milk processing and later in frozen and canned vegetables. Parson's operating strategy was to provide capital and management expertise to acquired entities while giving local management signicant decisionmaking autonomy. This strategy worked well with uid milk processors who tended to compete in local or regional areas. As Parson moved into frozen and canned vegetables, it increasingly found that these rms 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 nancial performance, resulting in lower prots 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 protability. This resulted in the creation of PFVC where all the vegetable companies were consolidated. Richard Lawson was named CEO of the new company. His charge was to improve the lagging performance in the vegetable group. Changes were expected and fast. Richard and his new executive team were feeling the pressure to nd a way to \"turn this thing around.\" THE OPPORTUNITY Richard knew he and his team faced many challenges. In recent months, they had been working on operational and structural changes designed to reduce administrative and selling costs. He also realized that continuing the turnaround requires the rm 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. revolutionary nutritious convenience frozen food product. The new product, Chicken Sensationsconsisting of frozen vegetables, spaetzels (a coated seasoned pasta), and chickenwould 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. While the potential for Chicken Sensations was palpable, Richard was a realist given PFVC's history of new product introduction. The most recent, Soupin-a-Flasha microwaveable soup starter kitfailed miserably with the company writing off$10 million in unsold nished goods. 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.\" IMA EDUCATIONAL CASE JOURNAL VOL. 10. NO. 2. ART. 3. JUNE 2017 2017IMA THE TEAM Richard decided to assemble a cross-functional team of PFVC's best sales, production, and nancial professionals to evaluate the feasibility of Chicken Sensations. Along with Carlos, team members included Gary Smits, the production manager, and Vicki Hoerning, the chief nancial analyst. At the team's rst meeting Richard began: \"Congratulations and welcome. You have been selected to evaluate the feasibility of a new product, Chicken Sensations. This product has the potential to create a new category of convenience frozen foods and to dramatically increase company prots. Our challenge is to objectively evaluate the potential of this product idea. Introducing a product and having it fail is not an option. Carlos had the idea for this product, so I will let him explain.\" Carlos stood up and moved to the front of the conference room. \"Thanks, Richard. Good afternoon. As many of you are aware, we currently produce Pasta Done, a microwaveable product consisting of frozen vegetables and spaetzels. This new product idea takes that concept one step further. We are going to add protein, in this case chicken, into the microwaveable bag with the vegetables and spaetzels. Competing products separate chicken, frozen vegetables, and a sauce in multiple pouches. Combining all of the ingredients enhances convenience and simplies the cooking process for consumers. They simply empty the contents into a bowl, add a tablespoon of water, microwave for six minutes, and voila! Dinner is ready. \"That delicious aroma you smell coming from the test kitchen is a sample of Chicken Sensations. Let's eat!\" While the team was sampling the product, Richard continued, \"Thanks, Carlos. I think this could be a winner, but we need to make certain it is nancially feasible. If we launch Chicken Sensations, we need to produce a price- competitive, highquality product that delivers a prot superior to our current offerings. We know that a signicant challenge to launching Chicken Sensations is getting USDA approval to handle meat in our processing facility. We have limited institutional knowledge of the process, because it was 30 years ago when we last applied for USDA approval. We also need to consider how our competitors will react to the new product and document market issues related to product costs and distribution. At our next meeting, I want to review your initial ndings on the nancial feasibility of Chicken Sensations. \"Carlos, I would like for you to evaluate the selling prices of current convenience frozen food products; propose a selling price; recommend the mix of chicken, spaetzels, and vegetables; forecast rst-year sales; and quantify incremental sales and marketing costs. \"Gary, I would like you to estimate the costs associated with retrotting (preparing) your facility for USDA approval and estimate product costs. \"Vicki, would you work with Carlos and Gary to generate a nancial feasibility analysis? You will probably need to perform analyses to evaluate the expected overall rstyear protability, breakeven sales level, and margin of safety. 'What-if' analyses can assess the impact of sales forecast errors and changes in the sales price, product costs, and quantity inputs. With our recent history of new product introduction, our goal is to far exceed breakeven in the rst year. Anything less would not be acceptable to Parson's corporate executives.\" Vicki commented, \"Richard you can count on me. I think I speak for the entire team when I say we are excited to be part of the team and will do everything possible to ensure the success of Chicken Sensations.\" Addressing the entire team, Richard reiterated, \"I do not think I need to remind you of the importance of this project. Because of the failure of Soup-ina-Flash and limited nancial resources, corporate executives will be reluctant to authorize the launch of any new products. We need to ensure our analysis is rocksolid before requesting any funds." TWU WEEKS LATER \"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 20ounce bag. With retailers IMA EDUCATIONAL CASE JOURNAL VOL. 10, ND. 2, ART. 3, JUNE 2017 requiring 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 rst 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 rst 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 rst 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 rst month with sales increases of 15,000 cases per month for the rst 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 conguration would be 12, 20ounce bags or a 15-pound case. Is that correct, Carlos?\" Gary questioned. \"Yes, I feel a 20ounce bag allows for us to be competitive on a price per ounce with other convenience frozen food products,\" Carlos claried. \"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 20ounce bags. Are you comfortable with your sales forecast? As I recall, the sales forecast for Soupin-a-Flash was overly optimistic, causing us to over-produce a product that never sold." Gary said. \"Yes, I am condent, 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 rst-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 prots,\" Gary nished. \"Carlos, thanks for addressing Gary's concerns. Now let's discuss the production and cost inputs,\" Vicki commented. \"Sure, Vicki. Based on the ease conguration 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 retrot the facility for USDA compliance, I anticipate spending an additional $2 million, which we will depreciate over ve 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 nancial feasibility analysis within the next few days. When we meet with Richard, I am condent he will want to discuss the impact of your assumptions on the nancial 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." IMA EDUCATIONAL CASE JOURNAL VOL. 10. ND. 2, ART. 3, JUNE 2017 Table 1: Chicken Sensation Feasibility Data Pounds -erCa.se Bags er Case First Month Sales Volume Monthly Sales Ctowth Year 1 Months per year in Year 1 Sales Forecast Firm- Percent December Sales Volume First Year Sales Volume Annual Sales Volume alter Year 1 Sales Price to Retailers (5 per bag) Coupon Costs (3 per bag) Commission a ercent) Slotting Costs Package Design Costs Sales Salaries Chicken Vegetab les Spaetzels Total (Must be 100 percent) Cases Sold Total Cents; Weighted Average Raw Material Cost Pounds per Case Total Raw Material Cost per Case Direct labor Variable Manufacturing Overhead Total Coversion Cost per Case Cil'er Lilli! Useful Life Hem Annual 15 12 :m ected number ofbags n er case Cam Initial sales forecast for the rst month Sales growth permonth forthe first year Nuttberofnnnths in a year Percent possible sales forecast error Based on sales price / bag and number ofbags f case Based on coupon perbag and nun'ber of bags per case Percentage of sales rice raid to brokers Bcpected slotting costs to be expensed overn years Expected packaging design costs paid in the rst year -ected annual additional sales and Irarketin - salaries to be -aid Expected cost ofchiclen per Chicken Sensations pound Expected cost of vegetables Chicken Sensations per pound Fmected cost ofspaetzels per Chicken Sensations pound Total must be 100 percent Weighted average cost perpound of Chicken Sensations Chicken Sensations cost per case (15 pounds per case) Based on price / bag and number of bags per case Expected price per boxwith 1 boxper case Total racka- in- costs ofba-s and boxes -ercase [er Casel mm mm Enacted rennt costs and depmciable life ALL-nail Deg'wr 5 IMA EDUCATIONAL CASE JOURNAL n VOL. 10, ND. 2r ART. 3r JUNE 2017 Case Questions: Would you decide to \"hatch\" Chicken d. Margin of saiety: Prepare a margin of safety analysis Sensations? Put yourself in Vicki's shoes. Prepare an analysis (in cases and sales dollars) for the year 1 forecasts of that will guide PFVC's decision on whether to launch Chicken Sensations. Chicken Sensations. e. Sensitivity analyses: Prepare sensitivity analyses to 1. Economic feasibility analysis: Perform an economic cost examine how robust year 1 ICSUICS are to changes in benet analysis of whether PFVC should launch Chicken projections for (1) the sales volume 0f cases, (2) the Sensations. Clearly state your decision and conclusion sales price per bag, and (3) the COM per pound 0f from your analysis. (You can use an Excel spreadsheet to ChiCkCH- Assume that these amounts can change for complete these tasks in an organized, neat appendix to three different projection levels as reported in Table 2: your case analysis. A reader of your case should be able (1) a pessimistic [CV53], (2) the original [CVCL and (3) an to follow your work and computations. The results of optimistic level. Table 2 shows that the sales volume your appendix analyses can be referenced in the body of (in cases) will be 75% 0f the original year 1 sales your case to support your decision.) To aid your analysis, forecast, the sales price per bag Will '3le be 90% 0f perform the following tasks: the original forecast (or $2.70/bag = $3.00/bag x 90%), and the cost per pound of chicken will rise to 112.50% of the original forecast (or $2.25 llb. = $2.00/lb. x 112.50%) for the pessimistic level. The original level a. Quantity. revenue. and cost conversions: Take Vicki's data from Table 1 and compute the quantity, revenue, and cost conversrons to complete Table 1. For _ _ , , _ _ . reports the results usmg the original prolections in example, calculate annual sales revenues (in cases), _ _ _ _ the case. Under the optimistic level, the sales volume sales revenue and variable cost amounts per case, and _ _ . . forecast (in cases) Wlll be 125% of the original year 1 annual xed cost amounts. , . . sales forecast, the sales price per bag Will increase to b. Forecasted contribution margin income statement: 110% of the original forecast (or $1 30/bag = $300,: Prepare a forecasted Chicken Sensations contribution bag x 110%), and the cost per pound of chicken will margin format income statement for year 1 based on decrease to 87.50% (or $115 lib. = $230,111 x 87.50%). the projected data gathered by Vicki. _ Report your sensitivity analysis results in Table 3. c. Breakavon analysis: Prepare a breakeven pomt analysis (in cases and sales dollars) for the year 1 forecasts of Chicken Sensations. Table 2: Sensitivity Analysis Levels Pe s simis tic Original _ Optimistic Sales Volume Case Forecast 75.00% 100.00% 125.00% Sales Price per Bag 90.00% 100.00% 110.00% Cost per Pound of Chicken 112.50% 100.00% 87.50% [MA EDUCATIONAL CASE JOURNAL 5 VOL. 10, N0. 2. ART. 3. JUNE 2017 Table 3: Reported Sensitivity Analysis Results Pessimistic Operating Income Contribution Margin Ratio Prot Margin Breakeven Sales (in Cases) Margin of Safety (in Cases) Margin of Safety Ratio . Impacts: Assess the impacts of your decision: 3. Benefits and harms: What benets/harms result and to Whom? b. Rights: What rights are being exercised or denied and by/to whom? e. Result: Do these impacts modify or change your decision? How? . Responsibilities: What responsibilities are present and how do these responsibilities inuence your decisions and actions? a. PFVC management: What responsibilities do Richard Lawson and PFVC management have in this situation and to whom? I). Vicki Hoerning: What are Vicki's responsibilities in this situation and to Whom? You can apply the general standards in the [MA Statement afEtim/ Prorsiaa! Practice (httpsuf(WWW.imanet.orglinsights-and-trendsl business-leadershi -and-ethics ima-statementof- ethical-professional-practice?ssopc=1) to help you identify specic responsibilities for Vicki in this situation. ABOUT IMA\" (lNSTI'l'UTE OF MANAGEMENT ACCOUNTANTS) IMA", the association of accountants and nancial professionals in business, is one of the largest and most respected associations focused exclusively on advancing the management accounting profession. Globally, IMA supports the profession through research, the CMA\" (Certied Management Accountant} program, continuing edumtion, networking and advocacy of the highest ethical business practices. IMA has a global network of more than 85,000 members in 140 countdes and 300 professional and student chapters. Headquartered in Montvale, N .J., USA, IMA provides localized services through its four global regions: The Americas, Asia/Pacic, Europe,_ and Middle East/India. For more information about IMA, please visit www.=imanet.org. IMA EDUCATIONAL CASE JOURNAL a VOL. 10, N0. 2, ART. 3, JUNE 2017