Wickler’s Exclusion of Selling and G&A Expenses: Energy Gel of HPC

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Energy Gel - A New Product Introduction
Direct costing is a basis for analyzing costs that only consider a given project's direct costs (variable costs) to reach a particular decision, excluding the indirect (fixed) costs. In this evaluation, the decision by Harry Wickler to exclude Selling, General & Administrative expenses, SGA, in the estimation of the projected cash flows of the proposed new product, Energy Gel, will be assessed and a recommendation given to the CFO of High-Performance Corporation, HPC.
EXCLUSION OF SELLING, GENERAL & ADMINISTRATIVE EXPENSES
SGA should not be excluded. By so doing, Wickler is applying the direct costing basis to decide in favor of the introduction of Energy Gel. Though direct costing was at one point a useful recommendation to the management, it is not a solution but rather a problem (Collier 261). The following are the reasons this basis should not be used.
Energy Gel Introduction is a Long-Term Project. The application of this basis is only feasible for short-term projects. Direct costing only works in a certain time range within which the production capacity levels remain constant. As argued by Mark Leiter, the increased business activity projected by the company to grow...