The Quench 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 “fridge packs.”
The activity costs associated with these activities for the period are as follows:
Mixing...............................................................$352,000
Filling...................................................................280,000
Packaging...........................................................168,000
Total..................................................................$800,000
Each can is expected to contain 12 ozs. 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 8,400,000 cans during the period, of which only 8,000,000 cans are actually packaged. Four hundred thousand 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 400,000 cans to 84,000 cans.
a. Determine the total activity cost per packaged can under present operations.
b. Determine the amount of increased packaging costs from the expected improvements.
c. Determine the expected total activity cost per packaged can after improvements. Round to the nearest tenth of a cent.