Which system would you recommend Sanitasto use? Why is this currently a better system for Neptune Networks?

Revenues 6,400,000,000 Costs Direct Labor 560,000,000 Direct Materials 420,000,000 Machine Setup 640,000,000 Inventory Management 2,400,000,000 Quality Control 500,000,000 Customer Service 240,000,000 Operating Profit 1,640,000,0001. Machine setup costs are generally incurred as the production line is being prepared. These costs are not related to the production scale. Rather, the costs seem to vary with the number of setups. 2. Inventory management costs refer to the costs incurred in storing finished compound. The costs seem to be caused by weight-time. Weight-time is a compound's weight (by tons) multiplied by the length of time the compound stays in the warehouse. Both the length of time that the compound is stored and its weight impact the inventory cost incurred by Sanitas. 3. Quality control costs appear to be driven by the number of tests conducted. More stringent reliability requirements require more testing. This driver seems to proxy for customers' reliability requirements. 4. Customer service costs are incurred when Sanitas sends its service personnel to its customers for emergency consultations. These costs seem to be primarily related to the number of travel miles. 5. The direct labor and direct materials costs at CC and MC are evaluated the same as in the existing system; these are variable costs varying with compound weight. Exhibit 2 contains some of the operating data the consultant projected for 2023. Jenny Lancaster understood that the pricing of Zyderon would be affected by any change in Sanitas' cost system during 2023 (while the negotiated margin would remain the same). Recent Development TE's quality control service recently purchased a piece of testing equipment, \\ Dynamic Material Sensing Testbed (DMST), that detects minute variations in chemical compositions. It intends to offer this machine to be used by external customers only. The machine's useful life is 1 year and its theoretical capacity isExisting Cost System at Sanitas The existing cost system at Sanitas calculates costs for CC and MC. Costs at CC and MC include direct labor and direct materials. The direct labor and direct materials costs are variable costs varying with compound weight (number of tons). Costs at TE are treated as overhead and allocated to CC and MC based on compound weight (number of tons). The budgeted operating income statement for Sanitas in 2023 is provided in Exhibit 1. The expected compound weights sold for CC and MC are 2,000,000 tons and 800,000 tons, respectively. A New Cost Study Jenny Lancaster, a Senior Vice President of Sanitas, is concerned with the high budgeted cost at CC in 2023. To more precisely assess each department's performance, in January 2023 Jenny Lancaster hired an outside consultant to conduct a new cost study which reveals the following information. 1. Machine setup costs are generally incurred as the production line is being prepared. These costs are not related to the production scale. Rather, the costs seem to vary with the number of setups. 2. Inventory management costs refer to the costs incurred in storing finished compound. The costs seem to be caused by weight-time. Weight-time is a compound's weight (by tons) multiplied by the length of time the compound stays in the warehouse. Both the length of time that the compound is stored and its weight impact the inventory cost incurred by Sanitas. 3. Quality control costs appear to be driven by the number of tests conducted. More stringent reliability requirements require more testing. This driver seems to proxy for customers' reliability requirements. . Customer service costs are incurred when Sanitas sends its service personnel to its customers for emergency consultations. These costs seem to be primarily related to the number of travel miles. 5. The direct labor and direct materials costs at CC and MC are evaluated the same as in the existing system; these are variable costs varying with compound weight.CC MC Number of Setups 20,000 60,000 Finished Inventory Weight by Tons 2,000,000 800 000 Days in Inventory 10 50 Number of Tests 2,000,000 8,000,000 Travel Miles 500,000 4,500,000B https://learn-us-cast-1-prod-fle.. Exhibit 3: Budgeted and Actual Direct Labor Usage in 2023 Budgeted Actual Wage per Hour DL Dollars Wage per Hour DL Dollars CC 400 400,000,000 300 750,000,000 MC 800 160,000,000 1,000 360,000,000 Total 560,000,000 1,110,000,000 Exhibit 4: 2024 Budget Assumptions Revenues 7,000,000,000 Direct Labor Cost 650,000,000 Direct Material Cost 450,000,000 Number of Setup 100,000 Number of Tests 8,000,000 Travel Miles 4,000,000 Tons of Compound 3,500,000Sanitas Chemicals, headquartered in Fairfax, VA, is a US-based chemical compound manufacturer. It was founded in 1957 by Dr. Ed Rozenbaum, a material science professor at the George Washington University. Over the years, it has continuously expanded its operations; and as of 2022 Sanitas is ranked No. 3 worldwide in sales volume among its industry peers. Sanitas consists of three departments: Commercial Compound (CC), Military Compound (MC) and Tooling & Engineering (TE). CC produces and supplies a chemical compound named Cefodene to various consumer product companies. Cefodene is used in beauty products to help lock in moistures in human skin. CC customers are typically located in big cities, close to Sanitas' offices. CC operates in a fairly competitive market; Cefodene, though it commands a sizable market share, has to compete with similar competitor products. Thus, Sanitas has limited pricing power over Cefodene. CC's customers typically source Cefodene continually and predictably and place orders several months in advance. This gives Sanitas plenty of time to schedule production and oftentimes enables Sanitas to combine orders from different customers into a single production run. MC is a defense contractor and produces a chemical compound named Zyderon exclusively for the US Department of Defense (DoD). Zyderon is a type of fire retardant, researched and developed in house and protected by patents. As Zyderon is widely used in sensitive military installations world-wide, MC's locations are scattered around the globe, often in remote areas, for quick response. Sanitas charges DoD a price equal to full cost plus a negotiated margin. In order to become more nimble, DoD moved to a JIT system which requires Sanitas to produce compounds on short notice and in small batches. Because military conflicts are infrequent and unexpected., Sanitas must store large quantities of inventory to ensure it is ready if a conflict emerges. Furthermore, military applications usually happen in harsh conditions. As such, Sanitas must test Zyderon extensively under simulated conditions to ensure quality. Finally, TE provides manufacturing support to both CC and MC. This support includes machine setup, inventory management, quality control, and customer service. Sanitas is currently mired in a public relations nightmare. In December 2022, Capital Gazette, a widely read and respected local newspaper, ran a scathing article accusing Sanitas of excessively charging DoD for parts and making a big profit at tax payers' expense. Sanitas has been working hard to restore its image and worried that the public would continue to scrutinize its financials