Derry Beverages manufactures its own soda pop bottles. The bottles are made from polyethylene terephthalate (PET), a lightweight yet strong plastic. Derry uses as much PET recycled resin pellets in its bottles as it can, both because using recycled PET helps Derry to meet its sustainability goals and because recycled PET is less expensive than virgin PET. Derry is continuing to search for ways to reduce its costs and its impact on the environment. PET plastic is melted and blown over soda bottle moulds to produce the bottles. One idea Derry's engineers have suggested is to retrofit the soda bottle moulds and change the plastic formulation slightly so that 15% less PET plastic is used for each bottle. The average kilograms of PET per soda bottle before any redesign is 0.02kg. The cost of retrofitting the soda bottle moulds will result in a one-time charge of $136,710, while the plastic reformulation will cause the average cost per kilogram of PET plastic to change from $5.00 to $5.20. Derry's management is analyzing whether the change to the bottle moulds to reduce PET plastic usage should be made. Management expects the following number of soda bottles to be used in the upcoming year: Derry Beverages Direct Materials Budget For Quarters 1 through 4 Units to be produced Quantity of direct materials needed per unit Quantity of PET needed for production Plus: Desired ending inventory Total quantity needed Less: Beginning inventory of direct materials Quantity to purchase Cost per kilogram Total cost of direct material purchases Requirement 2. Assume that the company retrofits the soda bottle moulds and changes the plastic formulation slightly so that less PET plastic is used in each bottle. Now prepare a direct materials budget to calculate the cost of PET purchases in each quarter for the upcoming year and for the year in total for this possible scenario. Start by preparing the direct materials budget through the total quantity needed, and then complete the budget. (Round all answers to the nearest number. For the quantity of direct materials needed per unit, enter round your answer to three decimal places X.XXX. Use parentheses or a minus sign for beginning inventory balances. Round cost per kilogram to Requirement 3. Compare the cost of PET plastic for Requirement 1 (original data) and for Requirement 2 (making change to using less PET.) What is the direct material cost savings from making the change to using less PET? Compare the total of those savings to the cost of retrofitting the soda bottle moulds. Should the company make the change? Explain your rationale. (Round all answers to the nearest dollar.) Begin by computing the direct material cost savings from making the change to using less PET. Compare the total of those savings to the cost of retrofitting the soda bottle moulds for the first year. (Use parentheses or a minus sign for a negative difference.) Should the company make the change? Explain your rationale. A. The company should not make the change (retrofitting). Reviewing the comparison of the total savings to the cost of retrofitting makes it appear that it should not retrofit. However, after the first year the annual savings are significant. B. The company should not make the change (retrofitting). Reviewing the comparison of the total savings to the cost of retrofitting shows that it should not retrofit. There is a net cost in the first year; therefore, it will never recoup the cost of retrofitting. C. The company should make the change (retrofitting). Reviewing the comparison of the annual savings to the cost of retrofitting shows that it should retrofit. There is net savings in the first year and after the first year the annual savings are significant. D. The company should make the change (retrofitting). Reviewing the comparison of the total savings to the cost of retrofitting shows that it should retrofit as the net savings is more than twice the cost of retrofitting the moulds. Requirements Data table 1. Using the original data (before any redesign of soda bottles), prepare a direct materials budget to calculate the cost of PET purchases in each quarter for the upcoming year and for the year in total. 2. Assume that the company retrofits the soda bottle moulds and changes the plastic formulation slightly so that less PET plastic is used in each bottle. Now prepare a direct materials budget to calculate the cost of PET purchases in each quarter for the upcoming year and for the year in total for this possible scenario. 3. Compare the cost of PET plastic for Requirement 1 (original data) and for Requirement 2 (making change to using less PET.) What is the direct material cost savings from making the change to using less PET? Compare the total of those savings to the cost of retrofitting the soda bottle moulds. Should the company make the change? Explain your rationale. da bottles), prepare a direct materials budget to calculate the cost of PET purchases in each quarter for the upcoming year ntity needed, and then complete the budget. (Round all answers to the nearest number. For the quantity of direct ecimal places X.XXX. Use parentheses or a minus sign for beginning inventory balances. Round cost per kilogram to
