Summary:

Lipman Bottle Company is a bottle distributor located in Albany, New York. The firm is operating
in variable sizes of bottles and printing, but their profit is entirely from printing. The vice president,
Robert Lipman, has a goal to make 30 percent margin and expand their business in New York-New
Jersey area. Hence, he asked us to review their product line and costing information then give
suggestions to increase profit and make a price list for the Albany area.
Analysis:

1. We completed the calculations finding variable costs per thousand bottles for a number of
combinations. Table #1 summarizes the variable costs for the Albany area, which includes
scrap. Table #2 summarizes the variable costs for the New York – New Jersey area, which
includes shipping but not freight costs. We analyzed the data for bottle sizes 0-1 oz. and 17-
32 oz., as well as order quantity ranges of 5,000-9,999 and 100,000-249,999. Full
calculations and details can be found in Exhibits 1-8.

Table #1

Table #2

2. Mr. Lipman’s goal is to get 30% margin of the revenue. Exhibit 9 shows the break even,
which means no gain or loss, the profit margin of 30%, and then the price calculated to
achieve the margin of revenue Mr. Lipman wanted. We subtract the 30% of revenue; the
break even should be the rest of 70% of revenue. So we use:
Variable cost + Fixed cost/Total machine-hours ($106,944/16,000hrs) = Break even
Total price (revenue) * (1-30%) = Break even
Thus, the suggested prices are shown in Exhibit 9. We found that 2 rounds cost almost twice
as much as the 1 round. We also found as the bottle size increases, the cost is also increasing,
but the higher order size, the lower cost.
3. In deciding which products to sell in the New York-New Jersey area we looked at the gross
margin and the shipping costs. We assumed Mr. Lipman wanted the 30% profit margin to
extend into this area of business as well. The difference in the shipping costs for the bigger
bottles verse the smaller bottles wasn’t a major difference at first glance, being only $2.42
per truck load. Then we took into consideration the number of truck loads they could be
shipping along with the gross margin computed in Exhibit 10. We found the bigger the bottle
size and the 2 Round Separations resulted in the greatest profit potential for the New York-
New Jersey area.
Exhibits:

Exhibit 1

Exhibit 2

Exhibit 3
Exhibit 4

Exhibit 5

Exhibit 6
Exhibit 7

Exhibit 8

Exhibit 9
 Exhibit 10

*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 hour (14.63)