Decision Making Pix Paper 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 as though during the last half year, we have had more unscheduled machine shutdowns than in the past. Thus, I think our vields must be dropping." Operator 3: "My sense is that our coating costs are going up. It seems as though 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: February March May January $67,200 $11,520 $63,840 $60,480 April $64,512 $15,667 $57,120 June $53,760 $18,432 $30,720 $11,856 $12,960 Paper stock Coating Conversion cost (incl. energy) Pounds input to the process Pounds transferred out $16,320 $38,400 $36,480 $34,560 $36,864 $32,640 100,000 95,000 90,000 96,000 85,000 80,000 96,000 91,200 86,400 92,160 81,600 76,800 a. Prepare a table showing the paper cost per output pound, coating cost per output pound, conversion cost per output pound, and yield (pounds transferred out/pounds input) for each month. Round your per unit answers to the nearest cent. If required, round the yield to the nearest whole number. Pix Paper Inc. Schedule of Costs for six months January February March April May June Paper stock ($ + pounds output) Coating (s + pounds output) Conversion cost ($ + pounds output) Yield (pounds transferred out + pounds input) % % %6 % % % b. Interpret your table results. Operator 1 believes that energy consumption is becoming efficient. The energy cost is part of the conversion cost. The conversion cost per output pound has for the six months. If the energy efficiency were it would take more energy per pound of output over time. Thus, we would expect to see the conversion rate per pound if Operator 1 were correct. Operator 2 believes that there are materials losses from increasing startup and shutdown activity. If materials losses were then there would be less materials transferred out per pound of inputs over time. The yield has over the six-month period. Thus, Operator 2's hypothesis validated. The stable cost of the paper stock per output pound also suggests that the yields are remaining stable. Operator 3 is concerned about coating costs. The coating cost per output pound over time. Thus, it can be concluded that the coating efficiency is coating is being spread on the paper stock. over time
