The Case Consider BubbleX Manufacturing Company, which makes glass bottles for bottling wine. BubbleX's management has observed that in the last ve years, on average, for every set of total wine bottles budgeted for production in the Sparkling department, 20 percent of the bottles are lost to spoilage (breakage) and constitute the driver for the company's internal failure costs. In the rst quarter of ZOXX, BubbleX incurred costs outlined in Exhibit A to put sparkling wine bottles into production. The units to account for consist of the beginning work in process as well as the good units completed and transferred out. Over the years, BubbleX has observed that 20 percent of units to account for are normal spoiled units. Going through the inspections, BubbleX's production manager, Maria Cortez discovers that 2 percent of the units to account for constitute abnormal spoiled units. At the executive meeting last week, the chief executive ofcer asked the department heads to nd a way to respond to shareholder's concerns that the company needs to shift its strategy to include environmental, sustainability and government (ESG) management. Also, shareholders have indicated that they need to know what the company is doing to mitigate its climate-related risks. Consumer trends also have shown a shift towards industry competitors with clear ESG management strategies. The CEO stresses that the department will need to address shareholder concerns while balancing that with maintaining the company's operating income performance. Maria reasons that to full the CEO's request, she must rst start by identifying the costs of the defective products and analyzing their effect on the operating income for the quarter. Malia decides to ' consultant to help the company achieve its goals. The company sells sparkling bottles at $9.50 and rep monthly xed costs will be $200,000 for the quarter. Exhibit A presents the production data for the ace period. Exhibit A: Level 0 Level D Data for BubbleX Company at Month 1 [January 20XX] Physical Conversion Total Costs (4) Units [1} Material (2} Costs (3) = [2} + {3] Physical COWBFSiOH Total Costs Urits Material Costs Work in process, beginning inventory 1,500 $ 1,800 $ Degree of completion of beginning work in process 100% Started during month 80,500 Good units completed and transferred out during month Work in process, ending inventory Degree of completion of ending work in process 57,400 a 50% Total costs added during month 0 93,400 $ 180,400 278,800 Normal spoilage as a percentage of good units 20% Degree of completion of normal spoilage 100% Degree of completion of abnormal spoilage 100% Level 0 Data for ButheX Company at Month 2 [February ZDXX] Physical Units (1 ) Physical Units Direct Maten'al (2) Conversion Costs (3) Conversio 11 Costs Total Costs (4} : (2} + (3) Total Costs Work in process, beginning inventory 6,560 $ 7,872 $ 14,432 22,304 Degree of completion of beginning work in process 100% 60% Started during month 80,500 Good units completed and transferred out during month 60,942 Work in process, ending inventory '? Degree of completion of ending work in process 100% 50% Total costs added during month 1: 191,532 $ 296,004 Normal spoilage as a percentage of good units 20% Degree of completion of normal spoilage 100% Degree of completion of abnormal spoilage 100% 100% Level D Data for BubbleX Company at Month 3 ( March ZDXX] Physical Direct Conversion Total Costs (4} 2 Units (1) Material (2) Costs (3) (2) + (3) Physical Direct Conversio 11 Total Costs Units Material Costs Work in process, beginning inventory 6,965 $ 8,358 $ 15,323 $ 23,880 Degree of completion of beginning work in process 100% 60% Started during month Good units completed and transferred out during month Work in process, ending inventory Degree of completion of ending work in process 50% Total costs added during month Normal spoilage as a percentage of good units 20% $ 104,958 $ 192,423 297,330 Degree of completion of normal spoilage 100% 100% Degree of completion of abnormal spoilage 100% 100% Case Requirements You have been brought in as a management accounting consultant to help Maria achieve the CEO's demand. To do so, you are to follow the requirements below: 1. First, consider BubbleX's glass bottle manufacturing plant being developed for bottling wine. And imagine the manufacturing process covering the product's life cycle. Then write a reection on the risks or opportunity of investing in production resources. 2. Write a generalized reection on manufacturing company's management of risk and opportunities related to their enviromnental, social and governance (ESG) landscape. 3. Using a weighted average approach to process costing, track the ow of the manufacturing costs and identify the equivalent units of bottles to be produced by calculating costs of good units completed during production and units lost to spoilage for months of January, Febiuaiy, and March 2DXX at Level 0. 4. Using the value of direct materials and conversion costs arrived at in step 3, prepare a cost-volume-profit (CV P) income statement to calculate the operating income for each month and total for 1"t quarter at Level 0. Take note to keep the fixed costs and selling price of the product the same for each month. 5. Using the assumptions in the supporting explanations & assumptions section below, integrate a spoilage reduction strategy by increasing investments in resources. Execute a weighted average approach to process costing and track the flow of manufacturing costs, identifying equivalent units of bottles to be produced by calculating costs of good units completed during production and units lost to spoilage for\" the months of January, February, and March 20XX. Label this action as Level 1. 6. Similar to step 4, prepare a C VP income statement using the values arrived at in step 5. 7. Using the C VP income statement values for each level (0 1) compare the total variable cost of the quarter for each strategy and fmd the percentage difference in variables cost of Level 1 in comparison to Level 0. 8. Write a reection on the implications of the strategy implementations for each level and how the variable costs and prot analysis might impact BubbleX's ESG management targets. 9. Compute energy usage data related to the production of good units and spoiled (normal + abnormal) units for each of the strategies (Level 0 and 1). 10. Visualize and analyze the data in step 9. 1 1. Write a reflection on the environmental implications considering the cost/benefit analysis as well for each strategy. 12. Consider whether BubbleX should implement the strategies analyzed in this case or not. Write your recommendations and the implications of your decision. Instructions for Submission Your report should be in two parts: 1. A word file report (no - page limit) 2. Power Point file Both files must be submitted by the deadline specified on the syllabus. Supporting Explanations & Assumptions The leading world producers of wine report that the wine making industry incurs up to 1,750 kWh or 6,300 Megajoules (MJ) of energy every year (Malvoni et al. 2017), and 30 percent of that is incurred in wine glass bottle production and packaging (Landi et al. 2019) making this a high energy consumption energy industry and thus providing sustainability risks and opportunities. For this case, we lean on the assumption that one glass wine bottle takes 0.222 Megajoules (MJ) energy to produce (Drescher 2022). Assumptions related to tracking the flow of manufacturing costs and identifying the cost of direct materials and conversion costs of a.) bottles that make it to good units; and b.) bottles lost to spoilage include the following: 1. At Level 0, normal spoilage is 20% of units to account for. Intervention at Level 1 is a 5% decrease of normal spoilage by 5%, (or 15% of units to account for) while keeping abnormal spoilage of 2% constant throughout.2. To apply a 5% increase in investment at Level 1, first consider that at Level 0. costs are estimated at a ratio of 1.2 per unit for direct materials and 2.2 for conversion costs. Recreate original data to incorporate a 5% increase in costs of production related to direct materials and conversion such that the ratio becomes 1.26 for direct materials and 2.31 for conversion costs. 2. Each preceding month's ending work in process inventory should be the next month's beginning inventory. 3. In conducting a weighted average process costing approach to accounting for spoilage. the original data at Level 0 calculates good units as 70% of all units to account for, therefore when dropping down the amount of spoilage by 5%, the good units should automatically increase to 75% of units to account for. Learning Objectives By participating in and completing this case, students will be able to: 1. Examine the risks and opportunities in resource investments for product manufacture. 2. Analyze the link between product manufacture and environmental, social and government (ESG) risks and management. 3. Evaluate how internal failure costing methods in cost accounting can be implemented as an ESG maria gerrrent strategy. 4. Analyze cost of units manufactured and distinguish costs of goods units and spoiled units, using a weighted average process costing method. 5. Examine internal failure costs like spoilage and analyze their linkage to energy resources lost or wasted. 6. Analyze ESG management alternatives to reduce internal failure costs, such as increasing investments in production costs to improve quality and reduce spoilage. 7. Perform cost-volume-prot analysis to analyze the company's performance in terms of operating income should they decide to/ not to implement an increase in investments towards ESG management. 8. Outline arguments analyzing waste reduction measures to foster sustainability. Is it worth the effort