Konway Kola problem

July 2, 2016 Uncategorized

We are a start-up business competing in the carbonated cola market. Our

market includes the states of AR, TX, LA, TN, MO, MS, and OK. Target
customers are food wholesalers, food service companies, vending and
retailers.
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
Operating Budget :
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
Production Schedule :

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 retailers 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?

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