The Quench Beverage Company bottles soft drinks into aluminum cans. The manufact

Question

The Quench Beverage Company bottles soft drinks into aluminum cans. The manufacturing process consists of three activities: 1. Mixing: water, sugar, and beverage concentrate are mixed 2. Filling: mixed beverage is filled into 12-oz. cans. 3. Packaging: properly filled cans are boxed into cardboard "fridge packs." The activity costs associated with these activities for the period are as follows: Mixing Filling Packaging $321,000 285,000 114,000 720,000 Total The activity costs do not include materials costs, which are ignored for this analysis. Each can is expected to contain 12 ozs. of beverage. Thus, after being filled, each can is automatically weighed. If a can is too light, it is rejected, or "kicked," from the filling line prior to being packaged. The primary cause of kicks is heat expansion. With heat expansion, the beverage overflows during filling, resulting in underweight cans. This process begins by mixing and filling 6,240,000 cans during the period, of which only 6,000,000 cans are actually packaged. The difference of 240,000 cans are rejected due to underweight kicks. A process improvement team has determined that cooling the cans prior to filling them will reduce the amount of overflows due to expansion. After this improvement, the number of kicks is expected to decline from 240,000 cans to 60,000 cans. a. Determine the total activity cost per packaged can under present operations. Round to the nearest cent per can b. Determine the amount of increased packaging activity costs from the expected improvements.

Explanation / Answer

= 6,180,000 X $ 0.019

= $ 117,420

a. Total activity costs under present operations = $720,000 Total cans packaged under present operations = 6,000,000 Total activity cost per packaged can under present operations= $720,000/6,000,000 =$1.2 per can b. Current packaging activity costs for 6,000,000 bottles packaged = $ 114,000 So, packaging cost per bottle = $ 114,000/6,000,000 = $ 0.019 per bottle packaged So, for 6,180,000 filled cans, the total packaging activity cost

= 6,180,000 X $ 0.019

= $ 117,420

So, amount of increased packaging activity costs from the expected improvements = $ 117,420 - $ 114,000 = $3,420 Note: After this improvement, the number of kicks is expected to decline from 240,000 cans to 60,000 cans, thus increasing the number of filled cans to 6,180,000 [6,000,000 + (240,000 60,000)]. c. As we can find, the process improvement will only result into increasing the number of packaged cans as the number of rejected cans after filling them will reduce. So, the mixing and filling costs will remain the same and the packaging cost will change which we calculated in point (b.) So, total activity costs = $321,000 + $ 285,000 + $ 117,420 = $ 723,420 So, the expected total activity cost per packaged can after improvements = $723,420/6,180,000 = $ 0.117 per packaged can

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