The Smell of Success - Essay Example

The increased demand is estimated to be 85,000 additional units per year. The effect of these changes on the company’s income is presented in Appendix 1. The company will still incur a loss of $ 1.72 million.
Repackaging in Designer Bottles:
The Chief Financial Officer of the company, Lester Ledger, feels that the product lacks aesthetic appeal and suggests repackaging them in designer bottles. This will increase the variable cost per unit by $ 4.75 and the fixed production costs will increase by $ 40,000 per year. He predicts that the sales volume will increase by 32 % (264,000 units). However, the increase in sales does not outdo the increased costs and the company will incur a loss of $ 1.334 million (as shown in Appendix 2).
Reduction in the Bottle Size:
According to the Production Manager, Buster Bumble, the reduction in the standard size of the bottle by 10 % would drop the variable costs by $ 2.65 (amounts to $ 13.35 per unit). However, due to the reduced size, the sales will drop to $ 195,500 units. Though the contribution margin is considerably increased, the company still incurs a loss of $ 549,425 (as shown in Appendix 3).
Improved Marketing:
The marketing manager suggests that the product requires more promotion and an increase of the marketing budget by $ 527,000 will be appropriate. This, combined with a price increase of $4.90 per unit will increase the sales volume by 17 % (234,000 units). The contribution margin is considerably increased as both the sales volume and the unit prices are higher than before. The increase in the contribution margin is significantly higher than that of the fixed costs and hence results in a profit of $ 129,600 (Appendix 4).
Recommendation:
It is evident from the above analysis that the first three proposals still result in a heavy loss for The Lovely Scent Perfume Company. Read More