World Wide Drug

World Wide Drugs (WWD), Body Products Division is in the process of developing a proposal for a new product called Vital Hair. Vital Hair is a cream that is expected to help restore hair growth by rubbing on the scalp. The two individuals in charge of creating the proposal are, Ahmed Diba who is the controller of the Body Products Division and Cheryl Kelly who is the president of the division. The two are to create a proposal and present it to World Wide Drugs executive committee.

Diba was in charge of creating the proposal for the new product. When completed Kelly took a look at it and was not happy that Diba included potential litigation costs of $9.60 into the products variable cost per treatment. Kelly believes it decreases the chances of the product getting approved because you would need to sell more treatments in order to breakeven. Diba believes litigation costs should be included because of past lawsuits against WWD that were successful.

The conclusion to the issue was Diba would remove the $9.60 from the proposal, but be allowed to bring it up during the presentation to the executive members. Kelly did not inform Diba when the meeting was and attended it herself. The product has been approved, without the litigation costs being presented.

For the new product there are fixed costs of $2,000,000 that would include development, production, and marketing costs. Variable costs that were first proposed by Diba were $26.40, which included $9.60 for potential litigation costs. They expect a selling price of $96 per monthly treatment, of which $66 would go to WWD. If these were the costs associated and selling price associated with the product, they would need to sell 606,060 treatments to breakeven. In dollars this would be $39,999,960 in revenue. If they remove the $9.60 from the variable costs, all other costs would still remain the same. They would need to sell 487,804 treatments in order to breakeven, which is $32,195,064 in revenue. If they do not include...