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Process Activity Analysis The Brite Beverage Company bottles soft drinks into aluminum cans. The manufacturing process...

  1. Process Activity Analysis

    The Brite 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 $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

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Answer #1

(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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