I included the active ingredients and the blending direct labor because these amounts correlate with how many ounces are in each total. As you can see in Exhibit A, the higher the target rate per bottle, the higher the cost per case. Returns the highest projected revenue per case, the amount of active ingredients used to fill each bottle increases; therefore our contribution per case decreases.
The higher probability that the bottles are properly filled implies a lower cost of rework. Expected Revenue per Case Now that the probability of properly filled bottles has been calculated, we can determine our expected amount of revenue per case. The filling materials, filling direct labor, and filling overhead are important costs that will affect the bottom line; however they are not dependent on the target fill rate.
An alternative solution could be to invest in a more efficient production line for this drug. We would need to consider whether making improvements to the current production line or buying a completely ewe machine would be worth it for Lore verses using the current production line.
I started with the data the company provided in the projected operating profit and I calculated what the cost per case of active ingredients per ounce would be.
By calculating a per ounce amount, we can calculate the active ingredient cost per case. Unless every bottle meets the ill requirement of 10 ounces, there is going to be a rework cost. When we increase the target fill rate to This is because the more ounces used to fill the bottles; the more ingredients are going to be used.
As you can see in Exhibit A, the highest contribution per case is at the Specifically, we will want to evaluate the variable costs that change related to the target fill line.
Even though at a target rate of This is because the higher probability that the cases will meet the 10 ounce requirement, the more cases you will be able to sell at full price.
You can see on Exhibit A, that as the probability of properly filled bottles increases, revenue also increases. The quality of the production line that is being used for Linton is older and much slower than the other production lines in use. Cost of Active Ingredients per Case When trying to maximize profit, it is important to consider what costs are going to impact the bottom line.
Blakely Deciding the proper projected target fill for the bottles of new product is very important and can lead to a much higher. The purpose of this memo is to determine the target bottle fill rate (TFR) which will maximize the contribution of Linatol to Lorex Pharmaceuticals.
In order to calculate the maximum contribution (MC), we need to find out what the expected revenue (ER) per case is and subtract the expected variable cost (EVC) per case from it. On August 19th,Lorex Pharmaceutical requested assistance from Cougar Consulting to help determine the optimal fill rate for their new product Linatol, a cutting edge treatment for patients with high blood pressure.
I will Indicate what Information I found Important in making the best economic decision for the target fill amount - Lorex Memo introduction. There were several costs that we need to consider when analyzing what will return the most profit.
and my recommendation on what I believe would be the most profitable for Lore Pharmaceuticals. Lorex Pharmaceuticals recently gained FDA approval to market and sell a new product called Linatol.
This memo will address the need to select a target amount to which each ounce bottle of Linatol will be filled.Download