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# Lipman Bottle Company

Lipman Bottle Company Case Study

�Calculate the variable costs per thousand bottles for one-separation rounds, two-separation rounds,
and two-separation ovals, assuming that all ovals are printed on the machine with the automatic feature

for ovals.

�Do one set of calculations for the Albany area (scrap included) and another for New York�New Jersey

(freight included, but not scrap).

�Only do one bottle size (the smallest) and assume the average order size is 10,000 bottles.
�Prepare a suggested price list for the Albany area. Consider only one-separation rounds and two-

separation rounds or ovals, for only the smallest size bottle.

As a guide to completing this case you should consider the following questions:
�How did Mr. Lipman’s goal of a 30 percent margin (at capacity) affect your price recommendations?
�Which products should the company attempt to sell in New York�New Jersey? Explain
.
Summary
Lipman Bottle Company is located in Albany, New York and specializes in the distribution of
bottles. The company operates in varied bottle sizes as well as printing, but printing is its main
source of profits. The vive president of Lipman Bottle Company, Robert Lipman, aims to
achieve a 30 (thirty) per cent revenue margin as well as expansion of their business in New York,
New Jersey area. Hence, he requested for our services to carryout their costing information and
product line review and provide suggestions on how they can increase company’s profitability as
well as making a price list for their business which is located in the Albany area.

Analysis:

1. The calculations are carried out in order to find variable costs that the company incurs per
thousand bottles distributed for several combinations. The Albany area’s variable costs,
where scrap is included are summarized in Table 1 shown below. Also the New York,
New Jersey area’s variable costs, where shipping costs with exception of freight costs are
included is summarized in Table 2 shown below. In addition, data for 0-1 oz. and 1732
oz. bottle sizes are analyzed, as well as 5,000-9,999 and 100,000-249,999 order quantity
ranges. Full details as well as calculations are presented in Exhibits #1 to 8, while the
price list for the business which is located in the Albany area is presented in Exhibit #9
and calculations to determine the greatest profitability potential for New York, New
Jersey area is presented in Exhibit #10.

Table 1: Variable costs for the Albany area

Order SizeOrder SizeOrder SizeOrder SizeOrder SizeOrder Size
5,000 – 9,999100,000 – 249,9995,000 – 9,999100,000 – 249,9995,000 – 9,999100,000 – 249,999
0 – 1 oz.\$22.56\$18.81\$51.47\$43.96\$42.11\$34.60
17 – 32 oz.\$24.06\$20.31\$54.47\$46.96\$45.11\$37.60
Bottle Size

Albany
2 Separation – Oval

Albany
2 Separation – Round

Albany
1 Separation – Round

Table 2: Variable costs for the New York, New Jersey area

Order SizeOrder SizeOrder SizeOrder SizeOrder SizeOrder Size
5,000 – 9,999100,000 – 249,9995,000 – 9,999100,000 – 249,9995,000 – 9,999100,000 – 249,999
0 – 1 oz.\$22.22\$18.49\$49.23\$41.77\$39.87\$32.40
17 – 32 oz.\$47.35\$43.62\$74.36\$66.90\$65.00\$57.53
Bottle Size

New York, New Jersey
2 Separation – Oval

New York, New Jersey
2 Separation – Round

New York, New Jersey
1 Separation – Round

1. The goal of Mr. Lipman to attain 30 per cent revenue margin is illustrated in the
calculations shown in Exhibit #9 presenting the break even, which implies that no loss or
gain, the 30 per cent profit margin, and subsequently the calculation of price to enable the
attainment of Mr. Lipman’s wanted margin of revenue. We subtracted the 30 per cent of
obtained revenues; and the break even illustrated the remaining 70 per cent of the
obtained revenues. As a result, we used the equation shown below:
Variable cost + Fixed cost/ Total machine-hours (\$106,944/16,000 hrs) = Break even

Total price (Revenues) x (1-30 per cent) = Break even

Therefore, the prices that are suggested which were determined after calculations are
presented in Exhibit #9. Through the price determination calculations, we found that the
cost of 2 rounds separation was about two times more compared to cost 1 round
separation. Through the price determination calculations it was also found that increases
in bottle sizes was directly proportional to increases in cost (meaning bottle size increases
were accompanied by cost increases) but order sizes were inversely proportional to cost
(meaning the higher the size of an order the lower the cost).

1. In order to make a decision on the products that are likely to sell in the New York, New
Jersey area, the first step involved looking at the shipping costs and the gross margin. To
accomplish this, assumption that, Mr. Lipman was also interested in the extension of the
30 per cent margin on revenue into this business area was made. At first glance, a major
difference was not noted as a result of the shipping costs difference between smaller

bottles and bigger bottles since per truck load the difference was only \$2.42.
Subsequently, we also considered the number of truck loads that the company could be
shipping alongside computation of the gross margin as shown in Exhibit #10. Through
the calculations presented in Exhibit #10, we found that the bigger the 2 Round
Separations and the bottle size resulted in the greatest potential for profitability for the
New York, New Jersey area.

Exhibit #1

Albany 1 Separation Round2 Separation Round2 Separation Oval
Bottle Size (in oz.)0-10-10-1
Order Quantity5,000-9,9995,000-9,9995,000-9,999
Average Order Size7,5007,5007,500
Set-Up Time (in hours)244
Hours/1,000 bottles0.270.530.53 Operating Time/1,000 bottles12.41.76 Total Time/1,000 bottles1.272.932.29 Operating Cost/1,00018.5342.9133.55
Cost/1,000 passes2.635.265.26
Direct Cost to Manufacture21.1648.1738.81
Scrap1.43.33.3
Shipping
Total Direct Cost22.5651.4742.11

Exhibit #2

Albany 1 Separation Round2 Separation Round2 Separation Oval
Bottle Size (in oz.)17-3217-3217-32
Order Quantity5,000-9,9995,000-9,9995,000-9,999
Average Order Size7,5007,5007,500
Set-Up Time (in hours)244
Hours/1,000 bottles0.270.530.53 Operating Time/1,000 bottles12.41.76 Total Time/1,000 bottles1.272.932.29 Operating Cost/1,00018.5342.9133.55
Cost/1,000 passes2.635.265.26
Direct Cost to Manufacture21.1648.1738.81
Scrap2.96.36.3
Shipping
Total Direct Cost24.0654.4745.11

Exhibit #3

Albany 1 Separation Round2 Separation Round2 Separation Oval
Bottle Size (in oz.)0-10-10-1
Order Quantity100,000-249,999100,000-249,999100,000-249,999
Average Order Size175,000175,000175,000
Set-Up Time (in hours)244
Hours/1,000 bottles0.010.020.02 Operating Time/1,000 bottles12.41.76 Total Time/1,000 bottles1.012.421.78 Operating Cost/1,00014.7835.426.04
Cost/1,000 passes2.635.265.26
Direct Cost to Manufacture17.4340.6631.3
Scrap1.43.33.3
Shipping
Total Direct Cost18.8143.9634.6

Exhibit #4

Albany 1 Separation Round2 Separation Round2 Separation Oval
Bottle Size (in oz.)17-3217-3217-32
Order Quantity100,000-249,999100,000-249,999100,000-249,999
Average Order Size175,000175,000175,000
Set-Up Time (in hours)244
Hours/1,000 bottles0.010.020.02 Operating Time/1,000 bottles12.41.76 Total Time/1,000 bottles1.012.421.78 Operating Cost/1,00014.7835.426.04
Cost/1,000 passes2.635.265.26
Direct Cost to Manufacture17.4340.6631.3
Scrap2.96.36.3
Shipping
Total Direct Cost20.3146.9637.6

Exhibit #5
New York, New Jersey Area1 Separation Round2 Separation Round2 Separation Oval
Bottle Size (in oz.)0-10-10-1
Order Quantity5,000 – 9,9995,000 – 9,9995,000 – 9,999
Average Order Size7,5007,5007,500
Set-Up Time (in hours)244
Hours/1,000 bottles0.270.530.53 Operating Time/1,000 bottles12.41.76 Total Time/1,000 bottles1.272.932.29 Operating Cost/1,00018.5342.9133.55
Cost/1,000 passes2.635.265.26
Direct Cost to Manufacture21.1648.1738.81
Scrap
Shipping1.061.061.06
Total Direct Cost22.2249.2338.87

Exhibit #6
New York, New Jersey Area1 Separation Round2 Separation Round2 Separation Oval
Bottle Size (in oz.)17-3217-3217-32
Order Quantity5,000 – 9,9995,000 – 9,9995,000 – 9,999
Average Order Size7,5007,5007,500
Set-Up Time (in hours)244
Hours/1,000 bottles0.270.530.53 Operating Time/1,000 bottles12.41.76 Total Time/1,000 bottles1.272.932.29 Operating Cost/1,00018.5342.9133.55
Cost/1,000 passes2.635.265.26
Direct Cost to Manufacture21.1648.1738.81
Scrap
Shipping26.1926.1926.19
Total Direct Cost47.3574.3665

Exhibit #7
New York, New Jersey Area1 Separation Round2 Separation Round2 Separation Oval
Bottle Size (in oz.)0-10-10-1
Order Quantity100,000-249,999100,000-249,999100,000-249,999
Average Order Size175,000175,000175,000
Set-Up Time (in hours)244
Hours/1,000 bottles0.010.020.02 Operating Time/1,000 bottles12.41.76 Total Time/1,000 bottles1.012.421.78 Operating Cost/1,00014.835.4526.08
Cost/1,000 passes2.635.265.26
Direct Cost to Manufacture17.4340.7131.34
Scrap
Shipping1.061.061.06
Total Direct Cost18.4941.7732.4

Exhibit #8
New York, New Jersey Area1 Separation Round2 Separation Round2 Separation Oval
Bottle Size (in oz.)17-3217-3217-32
Order Quantity100,000-249,999100,000-249,999100,000-249,999
Average Order Size175,000175,000175,000
Set-Up Time (in hours)244
Hours/1,000 bottles0.010.020.02 Operating Time/1,000 bottles12.41.76 Total Time/1,000 bottles1.012.421.78 Operating Cost/1,00014.835.4526.08
Cost/1,000 passes2.635.265.26
Direct Cost to Manufacture17.4340.7131.34
Scrap
Shipping26.1926.1926.19
Total Direct Cost43.6266.957.53

Exhibit #9
ALBANYProfit Margin

1 Round2 Round2 Oval1 Round2 Round2 Oval

Bottle Size 0-1 oz.
Order Size 5,000-9,999\$29.24\$58.15\$48.790.3\$41.78\$83.08\$69.71
Bottle Size 17-32 oz.
Order Size 5,000-9,999\$30.74\$61.15\$51.790.3\$43.92\$87.36\$73.99
Bottle Size 17-32 oz.
Order Size 100,000-249,999\$25.49\$50.64\$41.280.3\$36.42\$72.35\$58.98
Bottle Size 17-32 oz.
Order Size 100,000-249,999\$26.99\$53.64\$44.280.3\$38.56\$76.63\$63.26

PriceBreak Even

Exhibit #10

New York, New JerseyProfit Margin

1 Round2 Round2 Oval1 Round2 Round2 Oval

Bottle Size 0-1 oz.
Order Size 5,000-9,999\$28.90\$55.91\$46.550.3\$12.39\$23.96\$19.95
Bottle Size 17-32 oz.
Order Size 5,000-9,999\$54.08\$81.04\$71.680.3\$23.36\$34.73\$30.72
Bottle Size 17-32 oz.
Order Size 100,000-249,999\$24.11\$47.39\$38.020.3\$10.33\$20.31\$16.30
Bottle Size 17-32 oz.
Order Size 100,000-249,999\$50.30\$73.58\$64.210.3\$21.56\$31.54\$27.52

PriceBreak Even

*Setup time / Median order size * 1,000
**Hours per 1,000 bottles + Run time / 1,000 bottles
***Total time / 1,000 bottles * Variable cost per machine hours (14.63)

References

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McEachern, W. (2012). Economics: A Contemporary Introduction. Mason, OH: South-Western
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