Lorex Pharmaceuticals Essay

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Cougar Consulting
To: Carter Blakely
From: Charles Johnson of Cougar Consulting
Date: 3/15/2011
Re: Fill Rate for 10 ounce bottles of Linatol

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 10-ounce bottle of Linatol will be filled. The analysis of several target fill rates was conducted to determine the one that maximizes the contribution per case, therefore generating the maximum revenue for Lorex Pharmaceuticals. This ideal fill rate will allow more bottles to be sold at the full retail price of $186 and limit the under filled
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For each target fill rate the proportion of bottles filled correctly had to be determined. This calculation provides a breakdown between cases that can be sold for the full amount of $186 and cases that are designated as seconds, which are sold for 80% of the full price or $148.80. Revenue per case grows continuously as the target fill rate increases. From the blending costs which include $67,662 of active ingredient per 5000 liters, and blending labor of $432 per 5000 liter batch the cost per ounce of medication is approximately $0.40. This provides input for the active ingredient cost. Based on the labor cost of $8.50 per hour at 12 cases per hour, the input for rework cost per case is approximately $0.70 per case. Contribution per case is derived from the revenue minus the costs. The contribution per case is the performance criteria that our decision is based upon. Results
A balance between revenue and cost is seen at a target fill rate of 10.4 ounces per bottle. The revenue per case is greater when the bottles are filled to 10.5 ounces; however the resulting increase in the active ingredient cost produces a lower contribution per case. The recommendation is to use a target fill rate of 10.4 ounces per bottle. Initially there will be an increased cost of active ingredients but in the long
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