Question

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 - Filling Packaging Total $452,000 400,000 228,000 $1,080,000 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 12,480,000 cans during the period, of which only 12,000,000 cans are actually packaged. 480,000 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 480,000 cans to 120,000 cans, thus increasing the number of filled cars to 12,360,000 (12,000,000 + (480,000 - 120,000). 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

Answer 1

a.Total activity cost per packaged can = Total cost/Total packaged cans

= 1,080,000/12,000,000

= $0.09 per can

b.Amount of increased cost = Packaging cost of additional 360,000 cans

= (228000/12,000,000)*360,000

= $6,840

c.Total activity cost per can = (1,080,000+6840)/12,360,000

= $0.087932

i.e. $0.088 per can