New Product Costing (summer)

You assignment is before taxes Profit and Loss (P&L) estimate for a new dry cereal product: Rootie Tootie Frooties.

Standard costs are to be calculated for:

Ingredients

Packaging

Direct Labor

Overhead (indirect labor, supervision, maintenance, NRG, depreciation, admin & general, employee benefits, insurance, taxes)

Annual sales forecast = 12,500,000 cases of 12 boxes, each box containing 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. No overtime schedules.

How many cases per minute must be produced to meet the annual sales forecast? Disregard any FG inventory; assume JIT.

Ingredients per 10.5 ounce box:

Wheat Flour: $0.578

Sugar: $0.121

Vitamins: $0.050

Coloring: $0.015

Packaging costs:

Inner liner (bag): $0.016 per box

Decorated carton: $0.098 per box

Shipping case (for 12 boxes) = $0.720

Direct Labor per shift required to produce Rootie Tootie Frooties:

1 kitchen lift truck driver

2 ingredient mixers

2 drier operators

4 flake inspectors

2 box erectors

2 caser operators

1 palletizer operator

1 take-away driver

Average Labor Rate per Hour = $17.85

Overhead per case of 12 boxes = $1.675

Margin Target = 50% of sales revenues

You are to calculate:

Total Cost per Case of 12 boxes:

Selling Price per case to yield a 50% margin:

Pre-tax margin per case in dollars:

Pre-tax margin $ per year for 12,500,000 cases:

Well, what do you think about the pricing of this product?