Economic Recommendation for Ned and Larry’s Ice Cream Company about the Product Container Size Ned and Larry’s Ice Cream Company produces specialty ice cream and frozen yogurt in pint-sized containers. The latest annual performance report praised the firm for its progressive policies but noted that environmental issues like packaging disposal were a concern. In an effort to reduce the effects of consumer disposal of product packaging, the report stated that Ned and Larry’s should consider changing the size of product container. At present, the firm packages its ice cream and frozen yogurt in pint containers. The packaging cost per gallon and handling labor cost per gallon are $0.256 and $0.128, respectively. The pint-sized container will require postconsumer landfill contribution from discarded packaging of 6,500 cubic yards per year. By packaging the product in containers larger than the current pints, the plastic- coated bleached sulfate board containers will hold more ounces of product per square inch of surface area. The net result is less discarded packaging per gallon of product consumed. Additional advantages to using larger containers include lower packaging costs per gallon and less handling labor per gallon. The firm is considering whether the product container should be quart-sized or half gallon-sized. Changing to a larger container requires redesign of the packaging and modifications to the filling production line. The existing material-handling equipment can handle the pints and quarts, but additional equipment will be required to handle half- gallons. Any new equipment purchased has an expected useful life of six years. If the firm will package ice cream and frozen yogurt in half-gallons instead of in pints, the total capital investment will be $1,900,000. However, the packaging cost per gallon and handling labor cost per gallon will be reduced by 4.6 cents and 0.9 cents, respectively. The quantity of discarded packaging is also reduced to 4,050 cubic yards per year. Alternatively, if the firm will package ice cream and frozen yogurt in quarts instead of in half-gallons, the total capital investment will be $1,200,000. The packaging cost per gallon and handling labor cost per gallon will be increased by 1.5 cents and 1.0 cent, respectively. Also, the quantity of discarded packaging will be increased by 1,150 cubic yards per year. Because Ned and Larry’s promotes partnering with suppliers, customers, and the community, they wish to include a portion of the cost to society when evaluating these new product container sizes. They will consider 50% of the postconsumer landfill cost as part of the costs for each container size. They have estimated landfill costs to average $20 per cubic yard nationwide. Ned and Larry’s uses a minimum attractive rate of return (MARR) of 15% per year to evaluate their capital investments. A study period of six years is considered appropriate for this project, at which time the equipment purchased for either option will have negligible market value. Production will remain constant at 10,625,000 gallons per year throughout the study period. Determine whether Ned and Larry’s should package ice cream and frozen yogurt in pints, quarts, or half-gallons based on (a) present worth analysis, and (b) rate of return analysis. Determine the following: Description of the problem Capital investment alternatives and cost data Details of economic evaluation Present worth analysis Rate of return analysis Conclusion

Economic Recommendation for Ned and Larry’s Ice Cream Company about the Product Container Size Ned and Larry’s Ice Cream Company produces specialty ice cream and frozen yogurt in pint-sized containers. The latest annual performance report praised the firm for its progressive policies but noted that environmental issues like packaging disposal were a concern. In an effort to reduce the effects of consumer disposal of product packaging, the report stated that Ned and Larry’s should consider changing the size of product container. At present, the firm packages its ice cream and frozen yogurt in pint containers. The packaging cost per gallon and handling labor cost per gallon are $0.256 and $0.128, respectively. The pint-sized container will require postconsumer landfill contribution from discarded packaging of 6,500 cubic yards per year. By packaging the product in containers larger than the current pints, the plastic- coated bleached sulfate board containers will hold more ounces of product per square inch of surface area. The net result is less discarded packaging per gallon of product consumed. Additional advantages to using larger containers include lower packaging costs per gallon and less handling labor per gallon. The firm is considering whether the product container should be quart-sized or half gallon-sized. Changing to a larger container requires redesign of the packaging and modifications to the filling production line. The existing material-handling equipment can handle the pints and quarts, but additional equipment will be required to handle half- gallons. Any new equipment purchased has an expected useful life of six years. If the firm will package ice cream and frozen yogurt in half-gallons instead of in pints, the total capital investment will be $1,900,000. However, the packaging cost per gallon and handling labor cost per gallon will be reduced by 4.6 cents and 0.9 cents, respectively. The quantity of discarded packaging is also reduced to 4,050 cubic yards per year. Alternatively, if the firm will package ice cream and frozen yogurt in quarts instead of in half-gallons, the total capital investment will be $1,200,000. The packaging cost per gallon and handling labor cost per gallon will be increased by 1.5 cents and 1.0 cent, respectively. Also, the quantity of discarded packaging will be increased by 1,150 cubic yards per year. Because Ned and Larry’s promotes partnering with suppliers, customers, and the community, they wish to include a portion of the cost to society when evaluating these new product container sizes. They will consider 50% of the postconsumer landfill cost as part of the costs for each container size. They have estimated landfill costs to average $20 per cubic yard nationwide. Ned and Larry’s uses a minimum attractive rate of return (MARR) of 15% per year to evaluate their capital investments. A study period of six years is considered appropriate for this project, at which time the equipment purchased for either option will have negligible market value. Production will remain constant at 10,625,000 gallons per year throughout the study period. Determine whether Ned and Larry’s should package ice cream and frozen yogurt in pints, quarts, or half-gallons based on (a) present worth analysis, and (b) rate of return analysis. Determine the following: Description of the problem Capital investment alternatives and cost data Details of economic evaluation Present worth analysis Rate of return analysis Conclusion

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ISBN:9780190931919

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Chapter1: Making Economics Decisions

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Economic Recommendation for Ned and Larry’s Ice Cream Company about the Product Container Size

Ned and Larry’s Ice Cream Company produces specialty ice cream and frozen yogurt in pint-sized containers. The latest annual performance report praised the firm for its progressive policies but noted that environmental issues like packaging disposal were a concern. In an effort to reduce the effects of consumer disposal of product packaging, the report stated that Ned and Larry’s should consider changing the size of product container.

At present, the firm packages its ice cream and frozen yogurt in pint containers. The packaging cost per gallon and handling labor cost per gallon are $0.256 and $0.128, respectively. The pint-sized container will require postconsumer landfill contribution from discarded packaging of 6,500 cubic yards per year.

By packaging the product in containers larger than the current pints, the plastic- coated bleached sulfate board containers will hold more ounces of product per square inch of surface area. The net result is less discarded packaging per gallon of product consumed. Additional advantages to using larger containers include lower packaging costs per gallon and less handling labor per gallon. The firm is considering whether the product container should be quart-sized or half gallon-sized.

Changing to a larger container requires redesign of the packaging and modifications to the filling production line. The existing material-handling equipment can handle the pints and quarts, but additional equipment will be required to handle half- gallons. Any new equipment purchased has an expected useful life of six years. If the firm will package ice cream and frozen yogurt in half-gallons instead of in pints, the total capital investment will be $1,900,000. However, the packaging cost per gallon and handling labor cost per gallon will be reduced by 4.6 cents and 0.9 cents, respectively. The quantity of discarded packaging is also reduced to 4,050 cubic yards per year. Alternatively, if the firm will package ice cream and frozen yogurt in quarts instead of in half-gallons, the total capital investment will be $1,200,000. The packaging cost per gallon and handling labor cost per gallon will be increased by 1.5 cents and 1.0 cent, respectively. Also, the quantity of discarded packaging will be increased by 1,150 cubic yards per year.

Because Ned and Larry’s promotes partnering with suppliers, customers, and the community, they wish to include a portion of the cost to society when evaluating these new product container sizes. They will consider 50% of the postconsumer landfill cost as part of the costs for each container size. They have estimated landfill costs to average $20 per cubic yard nationwide.

Ned and Larry’s uses a minimum attractive rate of return (MARR) of 15% per year to evaluate their capital investments. A study period of six years is considered appropriate for this project, at which time the equipment purchased for either option will have negligible market value. Production will remain constant at 10,625,000 gallons per year throughout the study period.

Determine whether Ned and Larry’s should package ice cream and frozen yogurt in pints, quarts, or half-gallons based on (a) present worth analysis, and (b) rate of return analysis.

Determine the following:

Description of the problem
Capital investment alternatives and cost data
Details of economic evaluation
Present worth analysis
Rate of return analysis
Conclusion

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