Case Study Essay

The male fairness segment industry is pitched at around Rs. 250 crore and the industry is growing at a scorching 150 percent per year. The industry evidently has woken up to the fact that the metro-sexual and has a large appetite for beauty (the industry expression is “male grooming”) products, particularly driven by a desire to look as fair as the fairer SEX.

ABC Company recently launched ‘GROOM PLUS’ the first men’s fairness cream and claims that the market feedback is highly positive and encouraging.

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It is now planning an extension of “GROOM PLUS” to products Iike bleaches, shaving creams, Lotions etc. Hitherto men used fairness cream /bleach that were available in parlour packs. Subsequent research showed that men prefer bleach of their own with its own fragrance and specific skin type formulations, especially branded ones.

Control, Inc., sells voltage regulators to other manufacturers, who then customize and distribute the products to quality assurance labs for their sensitive test equipment. The yearly volume of output is 15,000 units.

The selling price and cost per unit are shown below:

Selling price $200
Costs:
Direct material$35
Direct labor50
Variable overhead25
Variable selling expenses25
Fixed selling expenses 15 150
Unit profit before tax $ 50

Management is evaluating the alternative of performing the necessary customizing to allow Electron Control to sell its output directly to Q/A labs for $275 per unit. Although no added investment is required in productive facilities, additional processing costs are estimated as:

Direct labor$25 per unit
Variable overhead$15 per unit
Variable selling expenses$10 per unit
Fixed selling expenses$100,000 per year

Ans:

Incremental Revenue ($275-$200) $75 x 15000= $1125000
Incremental Variable Cost : $25+$15+$10=$50 x 15000 = $ 750000 Incremental Fixed Cost : $ 100000
Total Incremental Cost $750000+$100000=$850000
Incremental Profit $11,25,000-$850000=$275000

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