Case_ Red Brand Canners

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    CASE RED BRAND CANNERS

    On Monday, September 13,1965, Mr. Mitchell Gordon, President of Red rand !anners,as"ed the !ontroller, the Sales Mana#er, and the Prod$ction Mana#er to meet %ith him todisc$ss the amo$nt of tomato prod$cts to pac" that season. &he tomato crop, %hich had

    been p$rchased at plantin#, %as be#innin# to arri'e at the cannery, and pac"in#operations %o$ld ha'e to be started by the follo%in# Monday. Red rand !anners %as amedi$m(si)e company %hich canned and distrib$ted a 'ariety of fr$it and 'e#etableprod$cts $nder pri'ate brands in the %estern states.

    Mr. *illiam !ooper, the !ontroller, and Mr. !harles Myers, the Sales Mana#er, %ere thefirst to arri'e in Mr. Gordon+s office. an &$c"er, the Prod$ction Mana#er, came in a fe%min$tes later and said that he had pic"ed $p Prod$ce -nspection+s latest estimate of the$ality of the incomin# tomatoes. /ccordin# to their report, abo$t 02 of the crop %asGrade / $ality and the remainin# portion of the 3,,(po$nd crop %as Grade .

    Gordon as"ed Myers abo$t the demand for tomato prod$cts for the comin# year. Myersreplied that they co$ld sell all of the %hole canned tomatoes they co$ld prod$ce. &hee4pected demand for tomato $ice and tomato paste, on the other hand, %as limited. &heSales Mana#er then passed aro$nd the latest demand forecast, %hich is sho%n in 4hibit1. 7e reminded the #ro$p that the sellin# prices had been set in li#ht of the lon#(termmar"etin# strate#y of the !ompany, and potential sales had been forecasted at theseprices.

    Exhibit 1

    RED BRAND CANNERS

    Demand Forecasts, cases of 24-2 1/2 cans Prod$ct Sellin# Price 8 per!ase

    emand orecast:!ases;

    *hole &omatoes

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    Exhibit 2

    RED BRAND CANNERS

    rod!ct "tem rofitabi#it$

    %A## amo!nts are in do##ars &er case of 24-2 1/2 cans'

    rod!ct (ho#e

    )omatoes

    each

    *a#+es

    each

    Nectar

    )omato

    !ice

    Cooin

    .

    A&es

    )omato

    aste

    Sellin# Price et Profit .10 .30 (.10 (.9 .35 .10

    rod!ct !sa.e is as .i+en be#o0

    rod!ct o!nds &er

    Case

    *hole

    &omatoes

    1=

    Peach 7al'es 1=

    Peach >ectar 1C

    &omato ?$ice 0

    !oo"in#/pples

    0C

    &omato Paste 05

    an &$c"er bro$#ht to !ooper+s attention that, altho$#h there %as ample prod$ctioncapacity, it %as impossible to prod$ce all %hole tomatoes as too small a portion of the

    tomato crop %as / $ality. Red rand $sed a n$merical scale to record the $ality ofboth ra% prod$ce and prepared prod$cts. &his scale ran from )ero to ten, the hi#hern$mber representin# better $ality. Ratin# tomatoes accordin# to this scale, / tomatoesa'era#ed nine points per po$nd and tomatoes a'era#ed fi'e points per po$nd. &$c"ernoted that the minim$m a'era#e inp$t $ality for canned %hole tomatoes %as ei#ht andfor $ice it %as si4 points per po$nd. Paste co$ld be made entirely from #radetomatoes. &his meant that %hole tomato prod$ction %as limited to =, po$nds.

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    Gordon stated that this %as not a real limitation. 7e had been recently solicited top$rchase =, po$nds of Grade / tomatoes at = 1D0 cents per po$nd and at that timehad t$rned do%n the offer. 7e felt, ho%e'er, that the tomatoes %ere stilla'ailable.

    Myers, %ho had been doin# some calc$lations, said that altho$#h he a#reed that the!ompany sho$ld do $ite %ell this year, it %o$ld not be by cannin# %hole tomatoes. -tseemed to him that the tomato cost sho$ld be allocated on the basis of $ality and$antity rather than by $antity only as !ooper had done. &herefore, he had recomp$tedthe mar#inal profit on this basis :see 4hibit 3;, and from his res$lts, Red rand sho$ld$se 0,, po$nds of the tomatoes for paste, and the remainin#