Parvaderm Corporation

1. Masters must decide whether to approve a market test of the new products to a limited cross-section of drug and food-and-drug stores. The estimated cost of the test is $30,000, along with a $10,000 supplier set-up charge. A 20,000 unit minimum order for each package size is also required. Estimated total cost of the test market is as follows: $30,000 Test Market cost
+ 10,000 Set-up cost
+ 5,800 10 oz can Production cost
+ 4,800 5 ½ oz can Production cost $40,600 Total test Market cost

Based of Soft and Silky’s performance through 2000, results from the focus group studies and the performance of analogous products, the aerosol container concept should be produced further.

2.5 ½ Oz. Tube Pricing: 5 ½ Oz. Aerosol Pricing: 10 Oz. Aerosol Pricing: Retail Pricing $ 3.95 Retail Pricing $ 3.50 Retail Pricing $ 4.25
÷
1.4 ÷ 1.4 ÷ 1.4 Rack Jobber Pricing $ 2.82 Rack Jobber Pricing $ 2.50 Rack Jobber Pricing $ 3.04
÷
1.2 ÷ 1.2 ÷ 1.2 Manufacture Pricing $ 2.35 Manufacture Pricing $ 2.08 Manufacture Pricing $ 2.53
Less: Unit Variable Cost $(0.40) Less: Unit Variable Cost $(0.24) Less: Unit Variable Cost $(0.29)
Per Unit Contribution $ 1.95 Per Unit Contribution $ 1.84 Per Unit Contribution $ 2.24
÷
5.5 oz ÷ 5.5 oz ÷ 5.5 oz
Per Oz. Contribution $ 0.35 Per Oz. Contribution $ 0.34 Per Oz. Contribution $ 0.22

3.Forecast A: Unit Volume Oz.Contribution Contribution Dollars 5.5 oz Tube 8600000 × 0.35 = $ 3,010,000
5.5 oz. Aerosol:
Cannibalized Volume 2145174 × 0.34 = $ 729,359
Incremental Volume 300000 × 0.34 = $ 102,000
Total
11045174 $ 3,841,359
Less: Forecasted Volume (10745174) × 0.35 = $ (3,760,811)
Total
300000 $ 80,548
Forecast B: Unit