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The Super Project Case

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The Super Project Case Analysis
Dilemma of incremental analysis
[Author Name]

General Foods is a large corporation organized by Product lines. Corporation was planning to introduce a new product Super – a new instant dessert, based on flavored, water-soluble, agglomerated powder. Super would be offered in four flavors although chocolate was estimated to account for 80% of total sales. The requested capital investment for Super was $200,000, and its production would take place after modifying an existing building, where Jell-O was manufactured and by using available capacity of Jell-O agglomerator. Cost for the key machine was not included in the project. On the basis of test market experience, once the product is introduced, it was expected to capture a 10% of dessert market share, 80% of which would come from growth in total dessert market share and 20% of which would come from erosion of Jell-O sales.
There are basically four categories of capital investment project proposals at General Foods corporation: (1) safety and convenience; (2) quality; (3) increase profit; and other. Super project was considered into third category, as a profit-increasing project. Crosby Sanberg, a manager of financial analysis at General Food Corporation calculated return on investment in three different ways of on Super Project. The first technique was Incremental basis, which projected Super project would have an attractive return of 63% in 7 years, which in-turn could directly identify with the decision to product Super. The second technique was Facilities-Used Basis, which consider after using half of an existing agglomerator and two-thirds of an existing building, pre-existing Jell-O equipment. It projected Super project would have a return of 34%. The third technique was Fully Allocated Basis, which accounted by increasing the cost and investment base developed in second...

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