Issues Peter Jeffrey, president of Chef’s toolkit required funding so the company could manufacture and market a new invention, a pasta server. The pasta server would be manufactured by an injection molding process. How much should he sell the pasta server for and what are the worst, best, and expected case scenarios.
Analysis
They initially wanted to use a single cavity production mold (one device per cycle). Four cycles could be completed per minute so the monthly production capacity was at about 40,000 units. To replace units sold the company maintained a minimum of 10,000 units of inventory. If inventory exceeded 10,000 units they would need to rent a warehouse space that cost $230 per month and the warehouse can only hold up to 35,000 units. After producing 162,000 unites Peter determined that the single mold cavity would be obsolete. The depreciation charge of $0.145 per unit on wear and tear of mold, then a combined charge of $0.017 per unit on packaging mold and tool and dies. Ten dollars per month was allowed for depreciation of equipment. Wholesale price to the distributors was $1.82 per unit, net 30 days. Peter believed 50 percent of receipts would be paid in the first month and the remainder the second. Wholesalers would sell product to retail outlets for $2.15. Similar plastic kitchen utensils that were occasionally used for pasta serving were sold for $3.45 to $5.15, with retailers receiving a 100 percent mark-up. To get noticed they believed about 500 units would be given away monthly for the first four months for promotion. This would be able to be counted as sales expenses at their cost $1.292 per unit. By the end of 1995 Peter planned on using a20 percent tax rate and that the monthly sales would be 10,000 units, 5,000 units in the worse case and 30,000 in the best case scenarios. The capital cost would be $62,000 in three month instalments.