Process Activity Analysis
The Brite Beverage Company bottles soft drinks into aluminum cans. The manufacturing process consists of three activities:
The activity costs associated with these activities for the period are as follows:
Mixing | $167,000 |
Filling | 148,000 |
Packaging | 105,000 |
Total | $420,000 |
The activity costs do not include materials costs, which are ignored for this analysis. Each can is expected to contain 12 ounces 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 7,280,000 cans during the period, of which only 7,000,000 cans are actually packaged. 280,000 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 280,000 cans to 70,000 cans, thus increasing the number of filled cans to 7,210,000 [7,000,000 + (280,000 - 70,000)].
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.
$
c.
Determine the expected total activity cost per packaged can after
improvements. Round to three decimal places.
$ per can
(a)
Activities |
Amount $ |
Mixing |
$167,000 |
Filling |
148,000 |
Packaging |
105,000 |
Total activity cost of three activities |
$420,000 |
Total No of packaged Cans before improvements |
÷7,000,000 |
Total activity cost per packaged can is(420000/7000000) |
$0.06 per can |
(b)
In present situation per bottle packaging cost is = $105,000(packaging cost)/7,000,000 bottles
= $0.015 per bottle packaged
If activity improves and no of bottles packaged is increased from current 7000000 bottles to 7,210,000
Then total cost for 7210000 bottles will be = $0.015 x 7210000 = $108,150
Which results in increase in activity cost of packaging by
= $108,150 — $105,000
= $3,150
Alternatively it can also be calculated by multiplying the per bottle packaging cost to increased no of bottles packaged i.e. ($0.015 x 210,00) = $3,150
(c )
Since only activity of packaging is improved there is no effect on other two mixing and filing activities cost:
So, total activity costs
Activities |
Amount $ |
Mixing |
$167,000 |
Filling |
148,000 |
Packaging(revised) |
108,150 |
Total activity cost of three activities |
$423,150 |
Total No of packaged Cans after improvements |
÷7,210,000 |
Total activity cost per packaged can is(423150/7210000) |
$0.0586 per can |
Or $0.059 rounded to three decimals
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