Question

PLEASE SHOW ALL CALCULATIONS!!!!!

OSCM Assignment 6 - Reducing Waste vs. Price Increase

In a competitive marketing environment for consumer products, manufacturers are not allowed the luxury of raising selling prices to increase profits. This environment makes it difficult to increase sales unit volume without increasing very costly marketing expenses. Without price increases and sales volume increases, it is the job of top management decision makers to find other ways to increase profitability – they turn to Continuous Improvement.

Background:

We manufacture and distribute W&Ws, candy coated chocolate spheroids, in assorted colors. Our schedule calls for 1200 cases per 8 hours. Breaking down our standard cost of sales for our product, W&Ws, packaged in 3.75 ounce bags, 24 bags to a box, we find:

Labor:

88 hourly workers; $15.00 per hour, 8 hours per day, 5 days per week, 50 weeks per year, no overtime.

24 salaried managers @ $39,000 per year

Ingredients:

Chocolate; 2.0 ounces per bag, @ $9.99 per pound

Hard candy coating; 1.75 ounces per bag @ $6.55 per pound

Caffeine; 1 grams per bag; priced @ $300 per kilogram.

Packaging: One 3.75 ounce bag @ $.005, and one shipping case (each case contains 24 bags) @ $.120.

Overhead per 8 hour shift: $5600

Variances: Yesterday’s Production Variance Reports show we overused hourly labor by 3.8%; candy bags by 4.9%; chocolate by 4.9% and candy coating by 4.9%. Caffeine’s reported usage was unfavorable by 11%. Actual production was 1200 cases of W&Ws.

Margin: We currently have a 35% gross margin (gross selling price minus standard cost of sales).

Your assignments:

1. Calculate the standard cost for one (1) 3.75 ounce bag of W&Ws (100% yield, no waste).

2. Calculate the standard cost for 1200 cases (one day’s production).

3. Calculate the sales dollar value for one (1) day’s production (1200 cases) and the margin dollars from those sales (using standards).

4. What is the dollar value of all the variances listed above for 1 day?

5. If we can reduce the variances by 20%, assuming these variances continue for 250 days of operation, how much waste will we save in one (1) year?

6. How many dollars of sales are needed to yield the same margin dollars as the 20% variance reductions calculated in #5?

7. The easy part for Management is calculating the costs, variances, margins, etc. You can get “bean counters” to do that for you, with a little practice. The hard part is to put into place an action plan to reduce all forms of waste.

Based upon everything you read in this problem, prepare your step by step action plan for reducing waste. Tell me what things you questioned when analyzing the W&W cost structure. What do you think is happening out on the factory floor? Be specific and apply your critical thinking.

Answer 1

ANSWER:-

* Calculate the standard cost for one(1)3.75 ounce bag of W&Ws (100%yield,no waste).ANSWER:2.96

* Calculate the standard cost for 1200 cases (one days production).ANSWER:85,324

* Calculate the grass sales dollar value for one(1)day's production (1200 cases) and the gross margin dollars from those sales (standards).ANSWER:Gross sales per day=28,441

* What is the total dollar value for all variances listed above for yesterday ? ANSWER:4,126

* If we can reduce the material variances by 20%,assuming these variances occur every days of operation,how much waste will we save in one(1)year? ANSWER:186,534

* How many dollars of sales are needed to yield the same gross margin $ amount as the 20%
variance reductions?ANSWER:746,137

* Detailed calculation are given below :

B C D E F G H C D E Production per shift Annual Production Candy bags per case Weight of each candy bag 1200 cases 300,000 cases 24 bags 3.75 oz Hours/day Days/week Weeks/year Hours/year 0.49 Standard Cost per bag Labor cost Ingredients cost Packaging cost Overheads Total 2000 2.27 0.01 0.19 2.96 Labor Workers Managers Employees total hours Salary Total cost 88 176000 14.77 2,599,520 39600 950,400 3,549,920 24 85,324 Standard cost per day for 1200 cases Total Gross Margin Selling Price per candy bag 25% 3.95 2 Ingredients Chocolate Hard Candy Coating Caffeine Qty (oz) Rate (lb/kg Amount per bag 9.99 1.25 1.75 6.55 0.72 1 300 0.30 2.27 Gross Sales per day Gross Profit per day 113,766 28,441 Total Qty Rate Packaging Bags Shipping case Amount per case 0.005 0.12 0.12 0.12 0.24 Dollar value for Variances listed Hourly labor Candy bags Chocolate Candy Coating Caffeine Total 3.8% 4.9% 4.9% 4.9% 11.0% Per day Annual 395 98,782 7 1,764 1,762 440,559 1,011 252,748 950 237,600 4,126 1,031,453 Total Overhead Shifts/year Cost/shift Amount 250 5600 1,400,000 3,731 Material Variances including candy bags Savings per year @20% variance reduction 186,534 Annual Gross Sales Annual Standard Cost Annual Gross Profit Amount % of Sales 28,441,393 100% 21,331,045 75% 7,110,348 25% 2570 Desired Gross profit to account to account for 20% variance Gross Sales corresponding to desired profit Incremental Sales 7,296,883 29,187,530 20 746,137

* if any queries, please leave a comment on comment box.