The Chicken Or The Egg: Hatching A New And Innovative Product

Case Questions: Would you decide to “hatch” Chicken

Sensations? Put yourself in Vicki’s shoes. Prepare an analysis

that will guide PFVC’s decision on whether to launch

Chicken Sensations.

1.   Economic feasibility analysis: Perform an economic cost-

benefit analysis of whether PFVC should launch Chicken

Sensations. Clearly state your decision and conclusion

from your analysis. (You can use an Excel spreadsheet to

complete these tasks in an organized, neat appendix to

your case analysis. A reader of your case should be able

to follow your work and computations. The results of

your appendix analyses can be referenced in the body of

your case to support your decision.) To aid your analysis,

perform the following tasks:

a.   Quantity, revenue, and cost conversions: Take Vicki’s

data from Table 1 and compute the quantity, revenue,

and cost conversions to complete Table 1. For

example, calculate annual sales revenues (in cases),

sales revenue and variable cost amounts per case, and

annual fixed cost amounts.

b.  Forecasted contribution margin income statement:

Prepare a forecasted Chicken Sensations contribution

margin format income statement for year 1 based on

the projected data gathered by Vicki.

c.   Breakeven analysis: Prepare a breakeven point

analysis (in cases and sales dollars) for the year 1

forecasts of Chicken Sensations.

d.  Margin of safety: Prepare a margin of safety analysis

(in cases and sales dollars) for the year 1 forecasts of

Chicken Sensations.

e.   Sensitivity analyses: Prepare sensitivity analyses to

examine how robust year 1 results are to changes in

projections for (1) the sales volume of cases, (2) the

sales price per bag, and (3) the cost per pound of

chicken. Assume that these amounts can change for

three different projection levels as reported in Table 2:

(1) a pessimistic level, (2) the original level, and (3) an

optimistic level. Table 2 shows that the sales volume

(in cases) will be 75% of the original year 1 sales

forecast, the sales price per bag will only be 90% of

the original forecast (or $2.70/bag = $3.00/bag × 90%),

and the cost per pound of chicken will rise to 112.50%

of the original forecast (or $2.25 /lb. = $2.00/lb. ×

112.50%) for the pessimistic level. The original level

reports the results using the original projections in

the case. Under the optimistic level, the sales volume

forecast (in cases) will be 125% of the original year 1

sales forecast, the sales price per bag will increase to

110% of the original forecast (or $3.30/bag = $3.00/

bag × 110%), and the cost per pound of chicken will

decrease to 87.50% (or $1.75 /lb. = $2.00/lb. × 87.50%).

Report your sensitivity analysis results in Table 3.