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.

Note: Two (2) production lines run on each shift.

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, each containing 12 boxes, must be produced each minute per 8 hour shift to meet the annual sales forecast? Disregard any inventory; assume JIT. Round up to closest case.

2.Total Cost Per Case containing 12 boxes (TC):

3.Selling Price per case to yield a 50% gross 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