Perform an economic costbenefit analysis of whether PFVC should launch Chicken Sensations. Clearly state your decision and conclusion from your analysis. (You can use an Excel spreadsheet to complete these tasks in an organized, neat appendix to your case analysis. A reader of your case should be able to follow your work and computations. The results of your appendix analyses can be referenced in the body of your case to support your decision.) To aid your analysis, perform the following tasks:

A. Quantity, revenue, and cost conversions: Take Vicki’s data from Table 1 and compute the quantity, revenue, and cost conversions to complete Table 1. For example, calculate annual sales revenues (in cases), sales revenue and variable cost amounts per case, and annual fixed cost amounts.

(Supplied pictures)

Chicken Sensations
Panel A: Sales and Marketing Data
Case Configuration:
Pounds per Case			15	Expected pounds per case
Bags per Case			12	Expected number of bags per case
Forecasted Sales Volume (Cases):
	Cases Sold		Annual Sales Cases
First Month Sales Volume	65,000			Initial sales forecast for the first month
Monthly Sales Growth Year 1	15,000			Sales growth per month for the first year
Months per year in Year 1	12			Number of months in a year
Sales Forecast Error Percentage	25%			Percent possible sales forecast error
December Sales Volume
First Year Sales Volume
Annual Sales Volume After Year 1
Sales Price/Coupon Costs/Commissions:
		Bags/Case	Per Case
Sales Price to Retailers ($ per bag)	$3.00			Based on sales price per bag and number of bags per case
Coupon Costs ($ per bag)	$0.20			Based on coupon per bag and number of bags per case
Commission (percentage)	6.00%			Percentage of sales price paid to brokers
Slotting/Package Design/Sales Salaries:
	Total Cost ($)	Useful Life	Annual
Slotting Costs	$6,000,000	1		Expected slotting costs to be expensed over n years
Package Design Costs	$2,000,000	1		Expected packaging design costs paid in the first year
Sales Salaries	$400,000			Expected annual additional sales and marketing salaries to be paid
Panel B: Production and Cost Data
Raw Material Percents/Costs (per lb):
	Percent	Cost/Pound	Dollars/Case
Chicken	20%	$ 2.0000		Expected cost of chicken per Chicken Sensations pound
Vegetables	65%	$ 0.5000		Expected cost of vegetables Chicken Sensations per pound
Spaetzels	15%	$ 0.1500		Expected cost of spaetzels per Chicken Sensations pound
Total (Must be 100%)	100%			Total must be 100%
Weighted Average Raw Material Cost				Weighted average cost per pound of Chicken Sensations
Pounds per Case
Total Raw Material Cost per Case				Chicken Sensations cost per case (15 pounds per case)
Packaging Costs:
	Cost per Bag/Box ($)	Qty/Case	Dollars/Case
Bags	$0.20			Based on price per bag and number of bags per case
Box	$0.30	1		Expected price per box with one box per case
Total Packaging Cost per Case				Total packaging costs of bags and boxes per case
Total Direct Material Costs per Case				Total Chicken Sensations materials and packaging costs
Conversion Costs:
	Cost/Pound	Pounds/Case	Dollars/Case
Direct Labor	$0.30			Based on labor costs per pound and number of pounds per case
Variable Manufacturing Overhead	$0.40			Based on var. mfg. overhead per pound and number of pounds per case
Total Coversion Cost per Case				Total conversion costs per case
Total Variable Product Cost per Case				Total direct material and conversion costs per case
Retrofit Costs:
	Total Cost ($)	Useful Life	Annual Depreciation
Retrofit Costs	$2,000,000	5		Expected retrofit costs and depreciable life
Chicken Sensations Year of Projected Perfomance Analyzed
Selected Year of Analysis: Year =

 
 

Transcribed Image Text:

THE CHALLENGE Parson Foods Vegetable Company (PFVC) is a newly created, wholly owned subsidiary of Parson Foods, one of the oldest and largest fluid milk processors in the United States. Parson was founded in 1925 and grew through a series of acquisitions, first in milk processing and later in frozen and canned vegetables. Parson's operating strategy was to provide capital and management expertise to acquired entities while giving local management significant decision-making autonomy. This strategy worked well with fluid milk processors who tended to compete in local or regional areas. As Parson moved into frozen and canned vegetables, it increasingly found that these firms were competing nationally. Multiple vegetable companies under the Parson Food umbrella were competing for the same business, often undercutting one another on price to "win" business. These activities threatened financial performance, resulting in lower profits and even losses in many of these vegetable companies. Parson's management decided that a strategic change was needed to return its vegetable companies to profitability. This resulted in the creation of PFVC where all the vegetable companies were consolidated. Richard Lawson was named CEO of the new company. His charge was to improve the lagging performance in the vegetable group. Changes were expected and fast. Richard and his new executive team were feeling the pressure to find a way to "turn this thing around." THE OPPORTUNITY Richard knew he and his team faced many challenges. In recent months, they had been working on operational and structural changes designed to reduce administrative and selling costs. He also realized that continuing the turnaround requires the firm to improve sales of continuing and new products. Several months ago, Carlos Rico, the company's marketing manager, approached Richard with an idea for a revolutionary nutritious convenience frozen food product. The new product, Chicken Sensations-consisting of frozen vegetables, spaetzels (a coated seasoned pasta), and chicken-would compete against frozen pizza and microwaveable dinners. Based on initial projections, Chicken Sensations had the potential to be a homerun with company sales, expected to increase by 20% and with gross margins double current vegetable offerings. While the potential for Chicken Sensations was palpable, Richard was a realist given PFVC's history of new product introduction. The most recent, Soup-in-a-Flash-a microwaveable soup starter kit-failed miserably with the company writing off $10 million in unsold finished goods. As a result, corporate executives were not enthusiastic about investing in another PFVC new product launch. Richard mused, "If Chicken Sensations fails, my tenure as CEO may be short-lived." THE CHALLENGE Parson Foods Vegetable Company (PFVC) is a newly created, wholly owned subsidiary of Parson Foods, one of the oldest and largest fluid milk processors in the United States. Parson was founded in 1925 and grew through a series of acquisitions, first in milk processing and later in frozen and canned vegetables. Parson's operating strategy was to provide capital and management expertise to acquired entities while giving local management significant decision-making autonomy. This strategy worked well with fluid milk processors who tended to compete in local or regional areas. As Parson moved into frozen and canned vegetables, it increasingly found that these firms were competing nationally. Multiple vegetable companies under the Parson Food umbrella were competing for the same business, often undercutting one another on price to "win" business. These activities threatened financial performance, resulting in lower profits and even losses in many of these vegetable companies. Parson's management decided that a strategic change was needed to return its vegetable companies to profitability. This resulted in the creation of PFVC where all the vegetable companies were consolidated. Richard Lawson was named CEO of the new company. His charge was to improve the lagging performance in the vegetable group. Changes were expected and fast. Richard and his new executive team were feeling the pressure to find a way to "turn this thing around." THE OPPORTUNITY Richard knew he and his team faced many challenges. In recent months, they had been working on operational and structural changes designed to reduce administrative and selling costs. He also realized that continuing the turnaround requires the firm to improve sales of continuing and new products. Several months ago, Carlos Rico, the company's marketing manager, approached Richard with an idea for a revolutionary nutritious convenience frozen food product. The new product, Chicken Sensations-consisting of frozen vegetables, spaetzels (a coated seasoned pasta), and chicken-would compete against frozen pizza and microwaveable dinners. Based on initial projections, Chicken Sensations had the potential to be a homerun with company sales, expected to increase by 20% and with gross margins double current vegetable offerings. While the potential for Chicken Sensations was palpable, Richard was a realist given PFVC's history of new product introduction. The most recent, Soup-in-a-Flash-a microwaveable soup starter kit-failed miserably with the company writing off $10 million in unsold finished goods. As a result, corporate executives were not enthusiastic about investing in another PFVC new product launch. Richard mused, "If Chicken Sensations fails, my tenure as CEO may be short-lived."

Answer rating: 100% (QA)

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