Energy Gel Case
Energy Gel Case Study High Performance Corporation (HPC) is deciding if they should proceed with a new product roll out of Energy Gel and if they do proceed with the project they are determining how to evaluate theEnergy Gel project. There is a clear line in the sand between Mr. Winkler and Mr. Leiter on how to evaluate the project, specifically regarding how to account for using Energy bar’s excess capacity for producing Energy Gel. After reviewing the arguments of both managers we agree with Leiter that the Energy Gel project should be evaluated on the full cost approach as this will best represent the project’s true potential. We agree with Leiter that the energy gel project should not have a “free ride” on the equipment utilized by both
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At the same time we see no evidence to support Leiter’s 10% cannibalization projection and would need more evidence to support such a large percentage payment. We believe a smaller percentage or capped percentage per year and for a predetermined number of years is a more appropriate model to support any loses that Leiter’s group may suffer. Cannibalization cannot be ignored, especially when it can effect another department’s contribution to the business, so we support a payment structure that is defined by evidence of accurate cannibalization percentages. In continuing to evaluate the project and determine any additional costs associated with the Energy Gel project we believe that Winkler must account for all overhead costs associated with the project. We agree with Leiter’s projection of 1 2% on general and administrative expenses and an 8% growth per year based on past energy bar expenses. We believe that equipment utilized in any capacity needs to be accounted for in Winkler’s overhead costs. Though we support Leiter’s general and administrative projections we see no evidence to support the idea that the Energy Gel project would utilize more overhead than any other project and we feel these additional expenses would not be accurate for the evaluation of the
At the same time we see no evidence to support Leiter’s 10% cannibalization projection and would need more evidence to support such a large percentage payment. We believe a smaller percentage or capped percentage per year and for a predetermined number of years is a more appropriate model to support any loses that Leiter’s group may suffer. Cannibalization cannot be ignored, especially when it can effect another department’s contribution to the business, so we support a payment structure that is defined by evidence of accurate cannibalization percentages. In continuing to evaluate the project and determine any additional costs associated with the Energy Gel project we believe that Winkler must account for all overhead costs associated with the project. We agree with Leiter’s projection of 1 2% on general and administrative expenses and an 8% growth per year based on past energy bar expenses. We believe that equipment utilized in any capacity needs to be accounted for in Winkler’s overhead costs. Though we support Leiter’s general and administrative projections we see no evidence to support the idea that the Energy Gel project would utilize more overhead than any other project and we feel these additional expenses would not be accurate for the evaluation of the