Question

Beverages manufactures its own . The bottles are made from polyethylene terephthalate​ (PET), a lightweight yet strong plastic. uses as much PET recycled resin pellets in its bottles as it​ can, both because using recycled PET helps to meet its sustainability goals and because recycled PET is less expensive than virgin PET.
Riley is continuing to search for ways to reduce its costs and its impact on the environment. PET plastic is melted and blown over soda bottle molds to produce the bottles. One idea Riley's engineers have suggested is to retrofit the soda bottle molds and change the plastic formulation slightly so that 25 % less PET plastic is used for each bottle. The average kilograms of PET per soda bottle before any redesign is 0.004 kg. The cost of retrofitting the soda bottle molds will result in a one-time charge of $22,112, while the plastic reformulation will cause the average cost per kilogram of PET plastic to change from $3.00 to $3.30.

Required:
a. Using the original data (before any redesign of soda bottles ), prepare a direct materials budget to calculate the cost of PET purchases in each quarter for the upcoming year and for the year in total.
b. Assume that the company retrofits the soda bottle molds and changes the plastic formulation slightly so that less PET plastic is used in each bottle. Now prepare a direct materials budget to calculate the cost of PET purchases in each quarter for the upcoming year and for the year in total for this possible scenario.
c. Compare the cost of PET plastic for Requirement 1 (original data) and for Requirement 2 (making change to using less PET.) What is the direct material cost savings from making the change to using less PET?

Answer 1

Answer:

I prepared an excel spreadsheet because there is not enough space here.

C) total savings =  previous materials costs - total cost per year after retrofitting - cost of retrofitting the molding machine = $137,105.10 - $102,168.00  - $22,112 = $12,825.10

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