Need this answered correctly. The final answers should be: Retail price for one
ID: 465329 • Letter: N
Question
Need this answered correctly. The final answers should be:
Retail price for one 12 oz. can = .20
Retail price for one 20 oz. bottle = .32
We are a start-up business competing in the carbonated cola market. Our market includes the states of AR, TX, LA, TN, MO, MS, and OK. Target customers are food wholesalers, food service companies, vending and retailers.
Our products are sold in two (2) serving sizes: 12-ounce aluminum cans and 20-ounce plastic bottles. Both stock keeping units (SKUs) are sold to customers in cases of 24 units. We produce only one flavor, “Konway Kola”. No diet products are produced. We pay delivery charges to our customers.
We employ 18 workers; 12 hourly and 6 salaried.
Average hourly pay = $10.80. Annual salaries average $34,500 per person.
Our business operations plan is based upon 240 days per year.
Each production shift is scheduled to operate 8 hours.
Annual Sales Forecast:
12-oz. cans = 960,000 cases of 24
20-oz. bottles = 576,000 cases of 24
Operating Budget:
Buildings = $1,200,000 purchase, ten (10) year depreciation
Equipment = $600,000 purchase, five (5) year depreciation
Maintenance = $60,000 per year
Energy = $2,000 per shift
Benefits = 40% of total wages and salaries combined
Marketing = $40,000 per year
Administration & General = $300,000 per year
Ingredient cost per case = $.72/12 oz.; $1.20/20 oz.
Packaging cost per case = $.72/12 oz.; $1.10/20 oz.
Warehousing = $180,000 per year
Delivery Charges = $0.325 per case of 12 ounce cans; $0.490 per case of 20 ounce bottles
Production Schedule:
12 ounce = 8,000 cases per shift
20 ounce = 4,800 cases per shift
Overhead includes: Building and equipment depreciation, employee benefits, marketing, administration & general, maintenance, energy, and warehousing (delivery cost is not included)
Production mix: We plan to pack only one (1) of the two (2) SKUs (either 12 ounce cans or 20 ounce bottles) per 8 hour shift. A total of 240 shifts are required to produce the annual requirements for both sizes combined.
Questions for you to answer:
1. How many shifts are required to produce the annual sales forecast for each SKU; 12 ounce and 20 ounce?
2. What is the total cost per case for each SKU? Break down costs into ingredients, packaging, overhead and labor. Work your answers out to three (3) places to the right of the decimal point.
3. What must the KKK selling price be per case (including delivery charges) for each of the SKUs in order to yield a 25% gross margin on sales dollars? Round up to next whole penny per case.
4. Assuming a 22% profit margin on the retailer’s selling prices, what will be the shelf price for one 12 ounce can and for one 20 ounce bottle? Round up to next whole penny per can or bottle.
5. How might we increase our production capacity?
6. How might we reduce our costs?
7. Do the retail prices per unit look attractive to you?
*** Use of this worksheet will help you ***
Worksheet
Overhead: Cost/Yr Cost/Shift
Depreciation 240,000
Maintenance 60,000
NRG 2,000
Benefits
Marketing 40,000
Warehousing 180,000
Admin & Gen 300,000 ___________
Total Overhead (add all costs) $ $
Cost per case: 12 oz. 20 oz.
Ingredients
Packaging
Overhead
Hourly Labor
Salary Labor ____________________
Total per Case (add up) $ $
KKK selling price calculation for 25% profit margin:
Total production cost per case + delivery charges/ (1 - .25)
*** Round up to next highest penny
KKK selling price per case of 24 twelve ounce cans =
KKK selling price per case of 24 twenty ounce bottles =
Retail shelf price per unit calculation for 22% retailer profit margin:
KKK delivered price/ (1.00 - .22)/24 units
Calculate for both sizes
*** Round up to next highest penny
Retail price for one 12 oz. can = .20
Retail price for one 20 oz. bottle = .32
*** Note: You must show all of your calculations
Explanation / Answer
Let,
No. of shift required for 12 ounce bottle = x
No. of shift required for 20 ounce bottle = y
Production schedule
12 ounce = 8,000 cases per shift
20 ounce = 4,800 cases per shift
Total no. of shifts =240
x + y =240
8000*x + 4800*y=1536000
On solving above two equation
y = 120
x = 120
Cost per case
For labour charges and overhead, divide the total cost in the ratio of sales and then divide by respective no. of sales. for e.g.
Ratio = 960000 : 576000 = 0.625 : 0.375
Labor cost per case for salaried person = 0.625 * 207000 = $129375
=129375/960000
= $ 0.1348
KKK selling price for 25% profit margin
Total production cost per case + delivery charges/ (1 - .25)
Selling price with 25% profit margin for 12-oz =$6.15
Selling price with 25% profit margin for 20-oz= $7.52
Annual Sales Forcast 12-oz 960,000 20-oz 576,000 Ingredient cost 12-oz ($0.72/12) 691200 20-oz ($1.20/20) 691200 Packaging Cost 12-oz ($.72/12 oz) 691200 20-oz ($1.10/20) 633600 Labor cost Salaried person(6/$34500) 207000 Hourly paid person (12/$10.8) 2335104 Overhead Total Deprication 240000 Maintenance 60000 Benefits (40% of total wages) 1016841.6 Marketing 40000 Administration & General 300000 Warehousing 180000 Delivery Charges 12-oz ($.325/12 oz) 312000 20-oz ($0.490/20) 282240Related Questions
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