Riley Beverages manufactures its own soda pop bottles.The bottles are made from polyethylene terephthalate (PET), a lightweight yet strong plastic. Riley uses as much PET recycled resin pellets in its bottles as it can, both because using recycled PET helps Riley to meet its sustainability goals and because recycled PET is less expensive than virgin PET.

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Riley 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 molds to produce the bottles. One idea Riley's engineers have suggested is to retrofit the soda bottle molds and change the plastic formulation slightly so that 25 % less PET plastic is used for each bottle. The average kilograms of PET per soda bottle before any redesign is 0.004 kg. The cost of retrofitting the soda bottle molds will result in a one-time charge of $22,112, while the plastic reformulation will cause the average cost per kilogram of PET plastic to change from $3.00 to $3.30

Requirements

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 molds 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 molds. Should the company make the change? Explain your rationale.

Riley's management is analyzing whether the change to the bottle molds to reduce PET plastic usage should be made Management expects the following number of soda bottles to be used in the upcoming year: 2 2. Riley Beverages manufactures its own soda pop bottles. The bottles are made from polyethylene terephthalate (PET), a lightweight yet strong plastic. Riley uses as much PET recycled resin pellets in its bottles as it can, both because using recycled PET helps Riley to meet its sustainability goals and because recycled PET is less expensive than (Click the icon to view the number of soda bottles.) irgin PET (Click the icon to view more information.) Read the requirements. Requirement 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 Start by preparing the direct materials budget through the total quantity needed, then complete the budget. Riley Beverages Direct Materials Budget For quarters 1 through 4 Quarter 1 Quarter 2 Quarter 3 Quarter Year Units to be produced Multiply by: Quantity of direct materials needed per unit Quantity of PET needed for production Plus: Total quantity needed Less Quantity to purchase Multiply by: Cost per kilogram Total cost of direct material purchases 2,000,000 2,600,000 2,300,000 3,100,000 10,000,000 0.004 40,000 1.760 41,760 800 40,960 3.00 $24,720 $ 30,840 $ 28,560 38,760 $ 122,880 0.004 8,000 1,040 9,040 800 8,240 0.004 10,400 920 11,320 1,040 10,280 0.004 9,200 1.240 0.004 12,400 1,760 10,440 14,160 1,240 9,520 2,920 Desired ending inventory 920 Beginning inventory of direct materials 3.00 3.00$3.00 $ 3.00 $ Requirement 2. Assume that the company retrofits the soda bottle molds 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, then complete the budget. Riley Beverages Direct Materials Budget For quarters 1 through 4 Quarter 1 Quarter 2 Quarter 3 Quarter 4 Year Units to be produced Multiply by: Quantity of direct materials needed per unit Quantity of PET needed for production Plus Total quantity needed 2,000,000 2,600,000 2,300,000 3,100,000 10,000,000 0.003 30,000 1,760 31,760 0.003 6,000 780 6,780 0.003 7,800 690 8.490 0.003 6,900 930 7,830 0.003 9,300 1,760 11,060 Desired ending inventory