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
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
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?
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 =
Retail price for one 20 oz. bottle =
1) Number of shifts required to produce annual sales forecast –
Annual forecast for 12 oz cans – 960,000 cases of 24
Annual forecast for 20 oz b
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