Pix Paper Inc. produces photographic paper for printing digital images. One of the processes for this operation is a coating (solvent spreading) operation, where chemicals are coated onto paper stock. There has been some concern about the cost performance of this operation. As a result, you have begun an investigation. You first discover that all materials and conversion prices have been stable for the last six months. Thus, increases in prices for inputs are not an explanation for increasing costs. However, you have discovered three possible problems from some of the operating personnel whose quotes follow: Operator 1: "I've been keeping an eye on my operating room instruments. I feel as though our energy consumption is becoming less efficient." Operator 2: "Every time the coating machine goes down, we produce waste on shutdown and subsequent startup. It seems as though during the last half year, we have had more unscheduled machine shutdowns than in the past. Thus, I think our yields must be dropping." Operator 3: "My sense is that our coating costs are going up. It seems as though we are spreading a thicker coating than we should. Perhaps the coating machine needs to be recalibrated.” The Coating Department had no beginning or ending inventories for any month during the study period. The following data from the cost of production report are made available: January February March April May June Paper stock $67,200 $63,840 $60,480 $64,512 $57,120 $53,760 Coating $11,520 $11,856 $12,960 $15,667 $16,320 $18,432 Conversion cost$38,400 $36,480 $34,560 $36,864 $32,640 $30,720 (Inc. Energy) Pounds input 100,000 95,000 90,000 96,000 85,000 80,000 to the process Pounds 96,000 91,200 86,400 92,160 81,600 76,800 Transferred out a. Prepare a table showing the paper cost per output pound, coating cost per output pound, conversion cost per output pound, and yield (pounds transferred out/pounds input) for each month. Round your per unit answers to the nearest cent. If required, round the yield to the nearest whole number. b. Interpret your table results.
Decision Making
Pix Paper Inc. produces photographic paper for printing digital images. One of the processes for this operation is a coating (solvent spreading) operation, where chemicals are coated onto paper stock. There has been some concern about the cost performance of this operation. As a result, you have begun an investigation. You first discover that all materials and conversion prices have been stable for the last six months. Thus, increases in prices for inputs are not an explanation for increasing costs. However, you have discovered three possible problems from some of the operating personnel whose quotes follow:
Operator 1: "I've been keeping an eye on my operating room instruments. I feel as though our energy consumption is becoming less efficient."
Operator 2: "Every time the coating machine goes down, we produce waste on shutdown and subsequent startup. It seems as though during the last half year, we have had more unscheduled machine shutdowns than in the past. Thus, I think our yields must be dropping."
Operator 3: "My sense is that our coating costs are going up. It seems as though we are spreading a thicker coating than we should. Perhaps the coating machine needs to be recalibrated.”
The Coating Department had no beginning or ending inventories for any month during the study period. The following data from the cost of production report are made available:
January February March April May June
Paper stock $67,200 $63,840 $60,480 $64,512 $57,120 $53,760
Coating $11,520 $11,856 $12,960 $15,667 $16,320 $18,432
Conversion cost$38,400 $36,480 $34,560 $36,864 $32,640 $30,720
(Inc. Energy)
Pounds input 100,000 95,000 90,000 96,000 85,000 80,000
to the process
Pounds 96,000 91,200 86,400 92,160 81,600 76,800
Transferred out
a. Prepare a table showing the paper cost per output pound, coating cost per output pound, conversion cost per output pound, and yield (pounds transferred out/pounds input) for each month. Round your per unit answers to the nearest cent. If required, round the yield to the nearest whole number.
b. Interpret your table results.
Operator 1 believes that energy consumption is becoming
efficient. The energy cost is part of the conversion cost. The conversion cost per output pound has
for the six months. If the energy efficiency were
, it would take more energy per pound of output over time. Thus, we would expect to see the conversion rate per pound
if Operator 1 were correct.
Operator 2 believes that there are
materials losses from increasing startup and shutdown activity. If materials losses were
, then there would be less materials transferred out per pound of inputs over time. The yield has
over the six-month period. Thus, Operator 2’s hypothesis
validated. The stable cost of the paper stock per output pound also suggests that the yields are remaining stable.
Operator 3 is concerned about coating costs. The coating cost per output pound
over time. Thus, it can be concluded that the coating efficiency is
over time.
coating is being spread on the paper stock.
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