Case: NewView Contacts While completing their third year of science at university, Erika and Kurtis invented a new contact-lens colouring process they named NewView. They did routine market studies which found that 80% of those surveyed wanted to try NewView. Erika and Kurtis developed a business plan, obtained several new business start-up grants, and had their product medically tested, approved and registered. One bottle of NewView contained enough solution for three months of normal contact lens use. As a result of consumer suggestions, NewView kept adding new colours and buyers could now choose from five different ones (red, green, blue, orange, and brown). To change eye colour a person would simply add two drops of NewView to each contact lens, wait five seconds, and the colour would last for 20 hours. With their $200,000 start-up grants, Erika and Kurtis had sufficient capital to lease a small plant, do some preliminary newspaper advertising, purchase the required manufacturing equipment, and hire a full-time production supervisor and a part-time office assistant. They also paid to have a company Web site built from which products could be ordered and the company marketed. To date, about 10 percent of sales occurred on NewViews website. However, in the most recent company survey, Kurtis found that 95% of the students contacted said they would prefer ordering NewView over the Internet. With their equipment and staff, they estimated they could produce up to 1000 bottles of NewView per eight-hour production shift. Production output ranged between 250 - 550 bottles and these targets were set by Erika during monthly production meetings regardless of actual sales or marketing research results. Recently, the production supervisor mentioned that there were increasing amounts of unshipped retailer returned NewView stacked in cartons throughout the plant and that he had now rearranged the production equipment several times to make room. Each bottle cost $4.00 to produce and was sold to retailers for $10.00 who in turn sold it to consumers for $20.00, which was also the price someone would by NewView for from the company Web site. During a routine Internet search, Erika discovered a news item about contact lens colouring tablets being developed by a leading contact lens manufacturer that was planning to give away the new tablets as a promotion when the product was launched next year. With this new information, the staff decided they needed to make some decisions as how to best manage, market and manufacture NewView.

New View continues to undergo challenges. Assuming production/sales is cut 50% from current levels what would be total profit/income in one year? Create a P&L statement and clearly show your work. PAY ATTENTION to the details and assumptions to ensure you calculate revenues properly.

Assume the following:

• 8-hour shift now = 400 bottles (between 250 & 550)

• Reduce by 50% = 200 bottles

• 5 days / week = 1,000 bottles per week

• Assume current splits of sales (90% retail, 10% online)

• Plant shut down of two weeks for upgrades