OSCM Assignment 6 - Reducing Waste vs. Price Increase

In a competitive market for consumer products, manufacturers are not allowed the luxury of raising prices in order to increase profits. This environment makes it difficult to increase sales unit volume without increasing very costly marketing expenses. Without price increases and sales volume increases, it is the job of management decision makers, like you, to find other ways to increase profitability they must turn to Continuous Improvement.

Background:

We manufacture and distribute W&Ws, candy coated chocolate spheroids, in assorted colors. Our schedule calls for 1200 cases per 8 hours. Breaking down our standard cost of sales for our product, W&Ws, packaged in 3.75 ounce bags, 24 bags to a box, we find:

Labor:

88 hourly workers; $15.00 per hour, 8 hours per day, 5 days per week, 50 weeks per year, no overtime.

24 salaried managers @ $39,000 per year

Ingredients:

Chocolate; 2.0 ounces per bag, @ $9.99 per pound

Hard candy coating; 1.75 ounces per bag @ $6.55 per pound

Caffeine; 1 grams per bag; priced @ $300 per kilogram.

Packaging: One 3.75 ounce bag @ $.005, and one shipping case (each case contains 24 bags) @ $.120.

Overhead per 8 hour shift: $5600

Variances: Yesterdays Production Variance Reports show we overused hourly labor by 3.8%; candy bags by 4.9%; chocolate by 4.9% and candy coating by 4.9%. Caffeines reported usage was unfavorable by 11%. Actual production was 1200 cases of W&Ws.

Margin: We currently have a 35% gross margin (gross selling price minus standard cost of sales).

Your assignments:

1. Calculate the standard cost for one (1) 3.75 ounce bag of W&Ws (100% yield, no waste). Be very careful on this one. If you miss it, 2 thru 6 will not be correct. Work out answer to 3 decimal places.

2. Calculate the standard cost for 1200 cases (one days production).

3. Calculate the sales dollar value for one (1) days production (1200 cases) and the margin dollars from those sales (using standards).