Go to www.YouTube.com and search for How It\'s Made, a television show produced
ID: 2575324 • Letter: G
Question
Go to www.YouTube.com and search for How It's Made, a television show produced by the Discovery Channel that shows how thousands of products and services are created. Find aproduct that you have purchased in the last year, such as a toothbrush, ball point pen, jeans, headphones, candybar etc.
Answer following questions:
1. What product did you choose and how is it made?
2. How much did you pay for this product?
3. What are the major variable costs of making this product?
4. Provide your best guess of the variable cost per unit for this product. You do not need to do extensive research to find out the cost of the inputs, but try to come up with a reasonable estimate.
5. Based on your answers, computer the unit contribution margin and contribution margin ratio.
Explanation / Answer
Answer following questions:
1. What product did you choose and how is it made?
Product I chose packet of Potato chips Brand: Pringles.
The chips have quite a long process in manufacturing. First the potatoes arrive at the plant were they tested for quality control purposes. After cleaning and all the examination they are put on a conveyer belt for further stages of manufacturing. From the conveyer belt to they are loaded to automatic peeling machine. Were they are peeled then washed with cold water. After this process they are loaded on revolving impeller which cuts them into paper-thin slices. This process makes sure that the chips are cut in uniform shape and sizes.
Uniformly sliced potatoes are chemically treated for color enhancement purposes. They are immersed into a solution for required level of hardness and mineral on the slices. The slices are then exposed to air jets that remove excess water. When the chips completely dry they are poured into troughs of oil which kept at the temperature of 350-375°F. After this process the fried chips are gently pushed to a drum were salt and seasoning is sprinkled over them according to the taste and flavor required. The chips are then gently pushed to wire mesh belts so that excess oil, seasoning and allows them to cool down. That this stage again quality check is done and all the burnt chips or any other damaged chips are removed.
The chips are ready to be eaten but very product value is added if they are properly and packed in an attractive package. The chips are then shifted to Central Processing Unit which releases the chips according to their weight into bags and then seals them. The packets are then packed into cartons and ready to go market.
2. How much did you pay for this product?
I paid for Pringles $2.46.
3. What are the major variable costs of making this product?
The major variable cost for making Pringles chips:
1. Direct Material: The price of potatoes and seasoning consumed.
2. Direct Labor: The wages paid to labor in quality control checks, setting up the plant for different stages of production of chips.
3. Direct Factory Overhead: The cost of electricity in running the machinery in manufacturing the chips.
4. Provide your best guess of the variable cost per unit for this product. You do not need to do extensive research to find out the cost of the inputs, but try to come up with a reasonable estimate.
The estimates for the variable cost: Basis of Estimates
Direct Material $0.246 (10% of Selling price $2.46)
Direct Labor $0.197 (8% of Selling price $2.46)
Direct Factory Overhead $0.049 (2% of Selling price $2.46)
Total Variable Cost $0.492 (20% of Selling price $2.46)
5. Based on your answers, computer the unit contribution margin and contribution margin ratio.
Direct Material $.246
Direct Labor $.197
Direct Factory Overhead $0.049
Total Variable Cost $0.492
Contribution Margin= Selling price- Variable Cost
= $2.46-$0.492= $1.968
Contribution Margin ratio= Contribution Margin / Selling Price
=$1.968 / $2.46
= 0.80
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