Chapter 11, Problem 23RQ

You are an engineer for a plastics manufacturing company. In examining cost-saving measures, your team has brainstormed the following ideas (labeled Idea A and Idea B). It is your responsibility to evaluate these ideas and recommend which one to pursue. You have been given a graph of the current process. A copy of this graph has been provided online; you may use one of these graphs, or use graph paper as directed by your instructor.

1. a. What is the selling price of the product?

   Current Cost: The current process has been running for a number of years, so there are no initial fixed costs to consider.

   In the operating costs, the process requires the following:

■    Material cost:	$2.00/pound-mass of resin
■    Energy cost:	$0.15/pound-mass of resin
■    Labor cost:	$0.10/pound-mass of resin

1. b. There is also a cost associated with taking the scrap material to the landfill. Using the total cost determined from the graph, find the cost of landfill, in dollars per pound-mass of resin.

   Idea A: Your customer will allow you to use regrind (reprocessed plastic) in the parts instead of 100% virgin plastic. Your process generates 10% scrap. Evaluate using all your scrap materials as regrind, with the regrind processed at your plant.

2. c. You will need to purchase a regrind machine to process the plastic, estimated at a cost of $100,000. Using the regrind will alter the following costs, which account for using 10% scrap material:

■    Material cost:	■    $1 80/pound-mass of resin
■    Energy cost:	■    $0.16/pound-mass of resin
■    Labor cost:	■    $0.11 /pound-mass of resin

This idea will eliminate the landfill charge required in the current process (see part [b]). Draw the total cost curve for Idea A on the graph or on a copy.

1. d. How long (in pounds of resin processed) before the company reaches breakeven on Idea A?
2. e. At what minimum level of production (in pound-mass of resin processed) will Idea A begin to generate more profit than the current process?

   Your customer will allow you to use regrind (reprocessed plastic) in the parts instead of 100% virgin plastic. Evaluate using 25% regrind purchased from an outside vendor.

3. f. Using the regrind from the other company will alter the following costs, which account for using 25% scrap material purchased from the outside vendor:

■    Material cost:	$1.85/pound-mass of resin
■    Energy cost:	$0.15/pound-mass of resin
■    Labor cost:	$0.11/pound-mass of resin

This idea will eliminate the landfill charge required in the current process (see part [b]) and will not require the purchase of a regrind machine as discussed in Idea A. Draw the total cost curve for Idea B on the graph or on a copy.

1. g. At what minimum level of production (in pound-mass of resin processed) will Idea B begin to generate more profit than the current process?
2. h. At a production level of 500,000 pound-mass of resin, which Idea (A, B, or neither) gives the most profit over the current process?
3. i. If the answer to part (h) is neither machine, list the amount of profit generated by the current process at 500,000 pound-mass of resin. If the answer to part (h) is Idea A or Idea B, list the amount of profit generated by that idea at 500,000 pound-mass of resin.