Essay on Lorex Pharmaceuticals

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

Introduction
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 …show more content…
Please feel free to contact me with any questions you may have. Sincerely,
Charles Johnson
Exhibit “A”

Target Fill Rate (oz.) | Proportion Filled Properly | Revenue/Case | Active Ingredient Cost | Rework Cost/Case | Contribution/Case | 10.0 | 0.50 | $167.40 | $48.32 | $0.35 | $118.72 | 10.1 | 0.735 | $176.33 | $48.81 | $0.18 | $127.34 | 10.16 | Approx 0.85 | $180.42 | $49.10 | $0.11 | $131.21 | 10.2 | 0.894 | $181.91 | $49.29 | $0.08 | $132.54 | 10.3 | 0.969 | $184.88 | $49.77 | $0.02 | $135.09 | 10.4 | 0.994 | $185.63 | $50.26 | $0.01 | $135.36 | 10.5 | 0.999 | $185.96 | $50.74 | $0.00 | $135.22 |

Exhibit “B”
Calculations
Probability of Correct Fill
Z = 10.0 – 10.0/0.16 = 0 Z = 0.50
Z = 10.0 – 10.1/0.16 = -0.625 Z = 0.735
Z = 10.0 – 10.16/0.16 = -1.0 Z = 0.85
Z = 10.0 – 10.2/0.16 = -1.25 Z = 0.894
Z = 10.0 – 10.3/0.16 = -1.88 Z = 0.969
Z = 10.0 – 10.4/0.16 = -2.5 Z = 0.994
Z = 10.0 – 10.5/0.16 = -3.125 Z = 0.999
Revenue/Case
0.5($186/case) + 0.5(148.80/case) = $167.40
0.74($186/case) + 0.26(148.80/case) = $176.33
0.85($186/case) + 0.15(148.80/case) = $180.42
0.89($186/case) + 0.11(148.80/case) = $181.91
0.97($186/case) + 0.03(148.80/case) = $184.88
0.99($186/case) + 0.01(148.80/case) = $185.63
0.999($186/case) + 0.001(148.80/case) = $185.96
Active Ingredient Cost
(Cost/5000L batch = $67,662) + (Cost Blending Labor/5000L batch = $432)/(5000L or 169,088 oz) = $0.4027/ounce
12 bottles @ 10oz =
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