Sherman Industries manufactures plastic bottles for the food industry. On average, Sherman pays $79 per ton for its plastics. Sherman's waste-disposal company has increased its waste disposal-charge to $56 per ton for solid and inert waste. Sherman generates a total of 500 tons of waste per month. Sherman's managers have been evaluating the production processes for areas to cut waste. In the process of making plastic bottles, a certain amount of machine "drool" occurs. Machine drool is the excess plastic that drips off the machine between molds. In the past, Sherman has discarded the machine drool. In an average month, 180 tons of machine drool is generated. Management has arrived at three. possible courses of action for the machine drool issue:
Sherman Industries manufactures plastic bottles for the food industry. On average, Sherman pays $79 per ton for its plastics. Sherman's waste-disposal company has increased its waste disposal-charge to $56 per ton for solid and inert waste. Sherman generates a total of 500 tons of waste per month. Sherman's managers have been evaluating the production processes for areas to cut waste. In the process of making plastic bottles, a certain amount of machine "drool" occurs. Machine drool is the excess plastic that drips off the machine between molds. In the past, Sherman has discarded the machine drool. In an average month, 180 tons of machine drool is generated. Management has arrived at three. possible courses of action for the machine drool issue:
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Sherman Industries manufactures plastic bottles for the food industry. On average, Sherman pays $79 per ton for its plastics. Sherman's waste-disposal company has increased its waste disposal-charge to $56 per ton for solid and inert
waste. Sherman generates a total of 500 tons of waste per month. Sherman's managers have been evaluating the production processes for areas to cut waste. In the process of making plastic bottles, a certain amount of machine "drool"
occurs. Machine drool is the excess plastic that drips off the machine between molds. In the past, Sherman has discarded the machine drool. In an average month, 180 tons of machine drool is generated. Management has arrived at three
possible courses of action for the machine drool issue:
Requirement 1. What is the annual cost of the machine drool currently? Include both the original plastic cost and the waste-disposal cost.
Material cost of machine drool (plastic)
Disposal cost
Total annual cost
Annual cost
Requirements
1. What is the annual cost of the machine drool currently? Include both the
original plastic cost and the waste-disposal cost.
2. How much would the company save per year (net) if the machine drool were to
be sold to the local recycler?
3. How much would the company save per year (net) if the production process
were to be re-engineered?
4. What do you think the company should do? Explain your rationale.
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1. Do nothing and pay the increased waste-disposal charge.
2. Sell the machine drool waste to a local recycler for $10 per ton.
3. Re-engineer the production process at an annual cost of $65,000. This change
in the production process would cause the amount of machine drool generated
to be reduced by 60% each month. The remaining machine drool would then
be sold to a local recycler for $10 per ton.
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