Lorex Pharmaceuticals Case

Dear Mr.Blakely,

Lorex pharmaceuticals receive approval from FDA to sell Linatol, a highly promising medicine for high blood pressure. The problem at hand is to determine the target fill rate that the filling line has to be set at in order to maximize the profits. The target fill rate should be high enough to reduce the number of under-filled bottles and at the same time it should be low-enough to minimize the wastage of the drug. The purpose of this memo is to consider all the relevant costs and other parameters before recommending an ideal target fill rate to achieve the maximum profit possible.

After careful analysis, the optimal target fill rate is determined to be 10.3 ounces. To arrive at this target fill rate of 10.3oz, various target fill rates ranging from 10.1oz through 10.5oz are compared. Summary of the results are given in the following table:

Target Fill Rate (Oz) No Of Cases for 5000 liters Proportion Filled Properly Revenue Per case ($) Total Cost per case ($) Contribution per case ($) Total Profit ($)

10.00 1409.07 0.50 167.40 65.05 102.35 144222.10

10.10 1395.12 0.73 176.11 65.38 110.73 154477.67

10.20 1381.44 0.89 182.07 65.76 116.31 160673.75

10.25 1374.70 0.94 183.80 65.98 117.83 161975.30

10.30 1368.03 0.97 184.87 66.20 118.67 162337.17

10.35 1361.42 0.99 185.47 66.44 119.03 162042.94

10.40 1354.87 0.99 185.77 66.68 119.09 161345.78

10.50 1341.97 1.00 185.97 67.18 118.79 159413.52

10.60 1329.31 1.00 186.00 67.67 118.32 157289.94

As evident, the profits realized are maximized at 10.3oz at $162337.17. The calculations performed for this summary are presented in Exhibit xxxx. And the overall analysis is presented in a detailed fashion in the rest of this memo.

Here are few points that are considered from the inputs provided by Lorex Pharmaceuticals in Exhibit xxxx.

1. The Marketing division at Lorex had decided the Linatol would be sold at a price of $186 per case, each case having 12 bottles of 10oz liquid.

2. Though the maximum production capacity of the filling line used was 1000 bottles per case, because of unexpected delays, Lorex began producing Linatol at an average of 500 cases over an eight-hour shift, which would come to 62.5 cases an hour on average.

3. The entire filling line was operated by two employees who shall be paid $12.80 per hour.

4. The overhead charge for operating the antiseptic filling room was $89.50 per hour and cost of materials used by filling line was $1.10 per bottle.

5. The under-filled bottles are sold in secondary markets at 80% of normal price, i.e. $148.40 per case.

6. The under-filled bottles will be hand-packaged by attendants who are capable to package 12 cases an hour and they make $8.50 an hour.

7. Other costs include Active ingredients and blending costs to produce Linatol which is estimated to be $69962 to produce 5000 liters or 169,088 ounces of