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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:

Managerial Accounting: The Cornerstone of Business Decision-Making
Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Chapter13: Emerging Topics In Managerial Accounting
Section: Chapter Questions
Problem 31BEB: Gumbrecht Company has the following departmental manufacturing layout for one of its plants: A...
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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. X More info 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. Print Done
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. X More info 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. Print Done
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