Lorex Pharmeceuticals
Overview
After reviewing your request, Cougar Consulting performed an analysis to assist Lorex Pharmaceuticals in determining a target fill rate for Linatol. The target fill that we selected is intended to maximize expected contribution during the manufacturing process and was based on information contained in a report given to Cougar Consulting. The analysis that we performed is described in further detail. Current Situation
Even though the automatic filling mechanism used for production can be set to a specific target fill, the information we obtained about Linatol suggested inconsistencies in the fill amount during operations. Since revenues and specific variable costs of Linatol are directly affected by fill amounts and contribution is the difference of these costs subtracted from revenue, ultimately, contribution is affected by the inconsistent fill amounts. Once we establish how these revenues and costs are affected by the fill amounts, we need to determine how the filling mechanism will function when set at a specific target fill. These understandings will give us the information required to figure a target fill that maximizes contribution for Linatol.
Revenue
Before we established a method to determine how the filling mechanism functioned at a specific target fill, we had to consider how the target fill affected the revenues and the variable costs when calculating contribution. Starting with revenue, we learned from the report that the bottles filled at or above 10 ounces would sell on the commercial market for $186 per case. On the other hand, bottles filled below the advertised 10 ounces would be sold for government use at $148.80 per case and are referred to as “seconds.” From this information, we created a formula (Figure 1) that calculated the revenue per case as a weighted average. The relationship between revenue and target fill is shown graphically in Attachment 1
Figure 1
Revenue = (% commercial) $186/case + (%
After reviewing your request, Cougar Consulting performed an analysis to assist Lorex Pharmaceuticals in determining a target fill rate for Linatol. The target fill that we selected is intended to maximize expected contribution during the manufacturing process and was based on information contained in a report given to Cougar Consulting. The analysis that we performed is described in further detail. Current Situation
Even though the automatic filling mechanism used for production can be set to a specific target fill, the information we obtained about Linatol suggested inconsistencies in the fill amount during operations. Since revenues and specific variable costs of Linatol are directly affected by fill amounts and contribution is the difference of these costs subtracted from revenue, ultimately, contribution is affected by the inconsistent fill amounts. Once we establish how these revenues and costs are affected by the fill amounts, we need to determine how the filling mechanism will function when set at a specific target fill. These understandings will give us the information required to figure a target fill that maximizes contribution for Linatol.
Revenue
Before we established a method to determine how the filling mechanism functioned at a specific target fill, we had to consider how the target fill affected the revenues and the variable costs when calculating contribution. Starting with revenue, we learned from the report that the bottles filled at or above 10 ounces would sell on the commercial market for $186 per case. On the other hand, bottles filled below the advertised 10 ounces would be sold for government use at $148.80 per case and are referred to as “seconds.” From this information, we created a formula (Figure 1) that calculated the revenue per case as a weighted average. The relationship between revenue and target fill is shown graphically in Attachment 1
Figure 1
Revenue = (% commercial) $186/case + (%