Wellsley Containers currently uses a recycled plastic to make bottles for the food industry.

Current bottle production? information:

The cost and time standards per batch of 10,000 bottles are as ?follows:

Plastic 360 kilograms at $11.00 per kg

Direct labor 6.0 hours at $20.00 per hour

The variable manufacturing overhead rate is based on total estimated variable manufacturing overhead of $500,000 and estiamted total DLH of 10,000. Wellsley allocates its variable manufacturing overhead based on direct labor hours (DLH).

Proposed changes to bottle design and production? process:

The container division manager is considering having both the bottle redesigned and the bottle production process reengineered so that the plastic usage would drop by 30 % overall due both to generating less scrap in the manufacturing process and using less plastic in each bottle. In addition to decreasing the amount of plastic used in producing the? bottles, the additional following benefits would be?realized:

a.

Direct labor hours would be reduced by 20 % because less scrap would be handled in the production process.

b.

Total estimated variable manufacturing overhead would be reduced by 10 % because less scrap would need to be hauled?away, less electricity would be used in the production? process, and less inventory would need to be stocked.

1.

Calculate the standard cost per batch of 10,000bottles using the current data? (before the company makes any? changes). Include direct? materials, direct? labor, and variable manufacturing overhead in the standard cost per unit.

Manufacturing cost	standard cost per batch
direct materials	$3,960
Direct labor	120
Variable MOH	300
Total standard cost	$4,380

2.

Calculate the standard cost per batch of 10,000 bottles if the company makes the changes to the bottle design and production process so that less plastic is used. Include direct? materials, direct? labor, and variable manufacturing overhead in the standard cost per unit.

Manufacturing cost	standard cost per batch
direct materials	$
direct labor
variable MOH
Total standard cost

3.

Calculate the cost savings per batch by comparing the standard cost per batch under each scenario? (current versus proposed? change). Assume that the total cost to implement the changes would be $434,700.How many batches of bottles would need to be produced after the changes to have the cost savings total equal the cost to make these? changes?

4.

What other benefits might arise from making this change to using less plastic in the manufacture of the? bottles? Are there any? risks? What would you recommend the company? do?