requiring a minimum $20\%$ gross margin for new products, Irecommend that our selling price to them be $$3$ per bag or$$36$ per case of $12.$Carlos further explained some of the sales expensesand other expected costs, $$To encourage consumer trial ofChicken Sensations, we will have to offer coupons of $$0\mathrm{.}20$per bag or $$2\mathrm{.}40$ per case for all cases sold in the first year. Togain access to convenience frozen food distribution channels,we will have to pay a brokerage commission of $6\%$ of oursales price. In addition, retailers $($in total$)$ require a one$-$timeslotting allowance of $$6$ million to purchase shelf space.$$Vicki noted that the slotting allowance costs would need tobe expensed in the first year.Continuing, Carlos explained estimates for other costs:$$Package design costs for artwork and photography expectedto be $$2$ million will have to be paid in the first year. Tosupport Chicken Sensations, we will need to hire additionalsalespeople at total annual cost of $$400,000.$ I anticipate wewill sell $65,000$ cases in the first month with sales increases of$15,000$ cases per month for the first year when we will reach amaximum of $230,000$ cases per month.$$Great$.$ Before we discuss the production and costassumptions$,$ Gary do you have any questions for Carlos?$$Vicki asked.$$Thanks for asking. I do have a few questions. Based onyour comments, it looks like our case configuration wouldbe $12,20-$ounce bags or a $15-$pound case. Is that correct,Carlos?$$ Gary questioned.$$Yes$,$ I feel a $20-$ounce bag allows for us to be competitiveon a price per ounce with other convenience frozen foodproducts,$$ Carlos clarified.$$That package size works great. We anticipate producingChicken Sensations at the Oakdale facility where we alreadymake spaetzels and have the capability and capacity topackage $20-$ounce bags. Are you comfortable with your salesforecast? As I recall, the sales forecast for Soup$-$in$-$a$-$Flashwas overly optimistic, causing us to over$-$produce a productthat never sold.$$ Gary said.$$Yes$,$ I am confident, Gary,$$ Carlos replied tersely, $$Iam not certain if you are aware that prior to joining PFVC$,$I successfully introduced several new frozen pizza productsat another company. The forecast I provided is consistentwith first$-$year sales volumes for those new products. In myexperience, for new product introductions, sales forecasterrors are generally incorrect by $25\%,$ so I would plan forsales to range from $75\%$ to $125\%$ of my forecast.$$Awesome$,$ one more question,$$ Gary interjected.$$Carlos$,$ what are consumers$$ expectations about the amountof protein to be included?$$For frozen pizza, consumers expect no less than $10\%$protein content. If the protein content $($e$.$g$.,$ chicken, beef,pork$)$ exceeds $20\%,$ consumers are unwilling to pay theincreased price for the product. Since we want consumersto have an initial positive impression of our product, Irecommend we include $20\%$ chicken, $65\%$ vegetables, and$15\%$ spaetzels for Chicken Sensations.$$Thanks$,$ Carlos. That works great. If anything, Ipresume once we have consumer acceptance of ChickenSensations we might substitute vegetables at $$0\mathrm{.}50$ perpound or spaetzels at $$0\mathrm{.}15$ per pound for chicken at $$2\mathrm{.}00$per pound to increase our profits,$$ Gary finished.$$Carlos$,$ thanks for addressing Gary$$s concerns. Now let$$sdiscuss the production and cost inputs,$$ Vicki commented.$$Sure$,$ Vicki. Based on the case configuration of $12,20-$ounce bags, packaging cost will be $$0\mathrm{.}20$ per bag forshipping to retailers. Each cardboard shipping box has a costof $$0\mathrm{.}30$ per box. At our processing facility, direct labor andvariable manufacturing overhead costs per pound are $$0\mathrm{.}30$and $$0\mathrm{.}40,$ respectively. To retrofit the facility for USDAcompliance, I anticipate spending an additional $$2$ million,which we will depreciate over five years with no salvagevalue,$$ Gary summarized.$$I have everything I need from you,$$ Vicki commented.The data Vicki gathered from Carlos and Gary are presentedin Table $1.$I should be able to prepare the preliminaryfinancial feasibility analysis within the next few days. Whenwe meet with Richard, I am confident he will want to discussthe impact of your assumptions on the financial feasibility ofChicken Sensations. When we are done with our meeting withRichard next week, I anticipate he will request a meeting withParson$$s corporate executives to review our plans and requestpermission to launch Chicken Sensations. I am excited aboutthe potential for Chicken Sensations. It$$s nutritious and tastesgood, too. Thanks, again. See you soon.$$IMA EDUCATIONAL CASE JOURNAL VOL. $10,$ NO$.2,$ ART. $3,$ JUNE $20173$

IMA EDUCATIONAL CASE JOURNAL VOL. $10,$ NO$.2,$ ART. $3,$ JUNE $20174$Pounds per Case $15$ Expected pounds per caseBags per Case $12$ Expected number of bags per caseCases SoldAnnual SalesCasesFirst Month Sales Volume $65,000$ Initial sales forecast for the first monthMonthly Sales Growth Year $115,000$ Sales growth per month for the first yearMonths per year in Year $112$ Number of months in a yearSales Forecast Error Percent $25\%$ Percent possible sales forecast