Question

Lasting Memories Inc. produces photographic paper for printing digital images. One of the processes for this operation is a coating (solvent spreading) operation, where chemicals are coated onto paper stock. There has been some concern about the cost performance of this operation. As a result, you have begun an investigation. You first discover that all materials and conversion prices have been stable for the last six months. Thus, increases in prices for inputs are not an explanation for increasing costs However, you have discovered three possible problems from some of the operating personnel whose quotes follow: Operator 1: "I've been keeping an eye on my operating room instruments. I feel as though our energy consumption is becoming less efficient." Operator 2: "Every time the coating machine goes down, we produce waste on shutdown and subsequent startup. It seems like during the last half year we have had more unscheduled machine shutdowns than in the past. Thus, I feel as though our yields must be dropping." Operator 3: "My sense is that our coating costs are going up. It seems to me like we are spreading a thicker coating than we should. Perhaps the coating machine needs to be recalibrated." The Coating Department had no beginning or ending inventories for any month during the study period. The following data from the cost of production report are made available: А B с D E Paper stock Coating Conversion cost (incl. energy) Pounds input to the process Pounds transferred out April May June July August September $72,960 $69,120 $76,800 $69,120 $65,280 $61,440 $16,416 $17,280 $21,120 $21,600 $21,216 $23,040 $36,480 $34,560 $38,400 $34,560 $32,640 $30,720 95,000 90,000 100,000 90,000 85,000 80,000 91,200 86,400 96,000 86,400 81,600 76,800 to mindronversion cost per output pound, and yield for each month. Round dollar

Answer 1

	April	May	June	July	Aug	Sept
Paper Stock($/Pound Output)	$72,960/91,200 =$.8	$69,120/86,400 =$.8	$76,800/96,000 =$.8	$69,120/86,400 =$.8	$65,280/81,600 =$.8	$61,440/76,800 $.8
Coating($/Pound Output)	$16,416/91,200 =$.18	$17,280/86,400 =$.2	$21,120/96,000 =$.22	$21,600/86,400 =$.25	$21,216/81,600 =$.26	$23,040/76,800 =$.3
Conversion cost($/Pound Output)	$36,480/91,200 =$.4	$34,560/86,400 =$.4	$38,400/96,000 =$.4	$34,560/86,400 =$.4	$32,640/81,600 =$.4	$30,720/76,800 =$.4
Yield(Pound transferred out/Pound Input	91,200/95,000 =.96	86,400/90,000 =.96	96,000/100,000 =.96	86,400/90,000 =.96	81,600/85,000 =.96	76,800/80,000 =$.96