Super Project Case Analysis

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Today we are dealt with the task of determining the optimal way to evaluate the investment of a new product, Super Project. Our financial analysis team observed three alternative techniques to assess the project. We looked at the relevant cash flows as well as other information in General Foods’ financial statements to come up with the best technique. After viewing all possible evaluation techniques, we found that the fully allocated basis was best in analyzing the true cost of the proposed investment.
The Super Project was analyzed on three options including an incremental basis, a facilities-used basis, and a fully allocated basis. Our team decided to look closer at the fully allocated basis because it accounts for implicit and explicit costs. We determined that including implicit costs was crucial in determining the value of the Super Project because you need to take into account the opportunity cost if you used the agglomerator for another product. In determining the long-term …show more content…
This number is found by looking at relevant cash flows including gross sales, deductions, costs of goods sold, SG&A costs, advertising expenses, and adjustments for erosion. The cost of market test and start-up cost are not relevant because it is a sunk cost and management should not include this cash flow in their evaluation. The adjustments for erosion of Jell-O’s contribution margin is a necessary cash flow to include in the investment analysis of this project because the production of Super will have a direct impact of Jell-O’s market share by negative 20%... In the case, the excess Jell-O agglomerator was not taken into consideration because General Foods was evaluating Super Project incrementally. The opportunity cost of not using this machine or repurposing it for future projects should be included in the

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