Costing a new productScenario

Costing a new productScenario

XYZ is considering adding a new recipe Peaches, Pineapples and Passionfruit to its 750ml smoothie range in 2020. The Marketing team thinks that this product would be incremental to existing sales as the recipe appeals to an entirely new group of consumers, and that XYZ could sell 0.52 million cases per annum.

Unfortunately, the Commercial team are finding their customer negotiations with the big supermarkets really tough, and to secure listings they need to reduce the sell-in price to a net revenue level of 5.00 per case. However, XYZ will not launch the product if it is not profitable. To help their calculations, the Commercial team have approached the Supply Finance team to produce an accurate figure for the COGS per case of this product.

Questions

Calculate the standard cost of the product for 2020 in pounds per case using the information overleaf. Make your own assumptions if required and keep a note of these for discussion. Feel free to use pen and paper, calculators, and Excel to help you. Given the cost you calculate, will the product be profitable?

Using your answer to Question 1 as a base case, what risk or opportunity is there to the products unit cost and XYZs P&L at an aggregate level if the following items deviate from your base case:

We change to a new supplier of passionfruit at a price of 900/tonne

Bottle prices increase by 20%

Packing line B suffers a catastrophic failure in August which prevents it packing any products for 3 months

Information for 750ml Peaches, Pineapple and Passionfruit smoothie

Recipe, fruit and blending:

Peach Pineapple Passionfruit

Inclusion in recipe 30% 50% 20%

Current purchase price 500/tonne $900/tonne $1,200/tonne

Blending cost: 40/tonne of finished blend

Packaging costs:

Bottles: 70/thousand

Caps: 15/thousand

Bottles in a case: 6

Packing costs (putting juice into bottles and bottles into cases):

Packing line A Packing line B Packing line C

Pack formats that this line can handle and fill 1L bottles,

750ml bottles, 1.25L bottles,

750ml bottles 1L bottles

Unused weekly capacity available January-June 10,000 cases 5,000 cases 20,000 cases

Unused weekly capacity available July-December 10,000 cases 10,000 cases 20,000 cases

Packing fee price 1.00/case 0.80/case 0.60/case

Weights and measures:

1 tonne = 1,000 kilograms

1 litre of fruit juice has a mass of 1 kilogram