The Doodad Company

This case was developed by Rakesh Pandey, revised August $2021,$ February $2022$ and August $2022$

A Core project team has named their company, The Doodad Company $($TDC$)$ and they will be making doodads, also called gadgets, for their project.

It is still early in the project, but the team has worked hard to gather data to start building their business model. Their objective is to have a one$-$year model for profit to present at the Business Development Workshop that will be coming up in a couple of weeks.

Based on their preliminary interviews, the TDC team has determined that their likely retail price is going to be $$10,$ and they have estimated their segment size to be about $10$ million customers.

While the team has not reviewed the BASES sales forecasting model in detail in marketing yet, they have been provided with some place holders for the year being considered $($Year $2).$ The place holder values are as follows:

Purchase Intent $($PI$)15\%$ Awareness $15\%$ Distribution $($ACV$)15\%\%$ of units lost to competition $0\%$

$=$ Units Sold

Based on these placeholder values, the team has calculated that the total Units Sold would be $33,750.$

The team has been given a placeholder of Channel Margin per unit of $45\%.$ With the assumed retail selling price of $$10\mathrm{.}00,$ the resulting Manufacturer's Selling Price to the channels per unit is $(1-0\mathrm{.}45)*$ $$10=$ $$5\mathrm{.}50.$

TDC has assumed that COGS would be $40\%$ of the Manufacturer's Selling Price based on their early discussions about Target Costing in OM$.$ OM has also provided guidance that the Cost of Raw Materials per unit would be about $50\%$ of COGS, Cost of Direct Labor per unit would be about $20\%$ of COGS, MOH per unit would be about $20\%$ of COGS and Cost of Outbound freight per unit would be about $10\%$ of COGS.

Calculations based on the above assumptions yield that the Remainder for all other costs and profit would be $$3\mathrm{.}30.$

Based on the discussions in their Core Operations Management and Finance classes, the team has the following place holders for some elements of the costs:

G&A per unit $20\%($of Manufacturer$$s Price per unit$)$

Sales and Marketing per unit $25\%($of Manufacturer$$s Price per unit$)$

This yields a Marginal Profit per unit of around $$0\mathrm{.}83.$

TDC members are wondering if they have missed any other costs and decide to put in a guestimate of $$10,000$ for Overhead Costs not covered elsewhere, just to be safe.

With the above data, the team can now create a spreadsheet with a profit calculation for Year $2.$