CASE -1
Reynolds Manufacturing
Company

Reynolds Manufacturing Company manufactures a product
that is processed in three sequential departments. Lately, the competition in the industry has
become very intense as many foreign manufacturers have introduced their product
in the international market at lower prices.
Management at Reynolds is considering process
improvement. They have been told by a sales
representative of a manufacturing equipment company that introduction of state-of-art
equipment and several other measures in processing department #1 can significantly
reduce the per unit cost of processing.
This would allow competitive pricing of their finished product. Cost reduction will be accomplished by
eliminating material wastage and eliminating direct labor cost (the new
equipment will perform many functions that previously required manual
labor). The new system will cost $ 6,320,000
and will have a useful life of ten years.
Accordingly, new equipment and other measures were introduced on a trial
basis. Management is eager to find out
if this change would yield the desired results. At the end of the trial month, the per unit
cost figures the following partial cost
of production report in Process #1 prepared by the company accountant was made available.

Beginning
Work in Process 60,000 units
(100%
Material, 75% Conversion)

Units
Started during the month 40,000 units
—————–
Units
to account for 100,000
units
===========
EQUIVALENT
UNITS
Direct
Material Conversion
Total
number of units completed 85,000 units 85,0000 85,000

Ending
Work in Process 15,000
units 15,000 12,000
(100%
Material, 80% Conversion)
——————————————————————–
Units
accounted for 100,000
100,000 97,000
===========================================

Direct
materials Conversion Total
Cost of Beginning Work in Process: $ 300,000 $
450,000 $ 750,000

Cost incurred this month: $ 160,000 $
116,00 $ 472,000
————————————————————————-
Total Cost $
460,000 $ 566,000 $1,222,000
Divided by Equivalent units
100,000 97,000
= $ 4.60 $ 5.84 $
10.44

Company CEO and the foreman in charge of the
department are not very enthused by the performance of the new system as he
sees no significant difference in per unit cost of processing and is wondering
if such a huge investment is justified when the company is under intensive
competitive pressure. However, the sales
representative insists that other companies who have purchased this system have
experienced significant reduction in cost of processing. You are a management consultant
retained by the company. You have been asked to look into this issue make a recommendation
to the CEO of the company. words required- 300-400

CASE -1Reynolds Manufacturing
CompanyReynolds Manufacturing Company manufactures a product
that is processed in three sequential departments. Lately, the competition in the industry has
become very intense as many foreign manufacturers have introduced their product
in the international market at lower prices.Management at Reynolds is considering process
improvement. They have been told by a sales
representative of a manufacturing equipment company that introduction of state-of-art
equipment and several other measures in processing department #1 can significantly
reduce the per unit cost of processing.
This would allow competitive pricing of their finished product. Cost reduction will be accomplished by
eliminating material wastage and eliminating direct labor cost (the new
equipment will perform many functions that previously required manual
labor). The new system will cost $ 6,320,000
and will have a useful life of ten years.
Accordingly, new equipment and other measures were introduced on a trial
basis. Management is eager to find out
if this change would yield the desired results. At the end of the trial month, the per unit
cost figures the following partial cost
of production report in Process #1 prepared by the company accountant was made available. Beginning
Work in Process 60,000 units (100%
Material, 75% Conversion) Units
Started during the month 40,000 units —————– Units
to account for 100,000
units =========== EQUIVALENT
UNITS Direct
Material Conversion Total
number of units completed 85,000 units 85,0000 85,000 Ending
Work in Process 15,000
units 15,000 12,000 (100%
Material, 80% Conversion) ——————————————————————– Units
accounted for 100,000
100,000 97,000 =========================================== Direct
materials Conversion TotalCost of Beginning Work in Process: $ 300,000 $
450,000 $ 750,000 Cost incurred this month: $ 160,000 $
116,00 $ 472,000 ————————————————————————-Total Cost $
460,000 $ 566,000 $1,222,000Divided by Equivalent units 100,000 97,000 = $ 4.60 $ 5.84 $
10.44Company CEO and the foreman in charge of the
department are not very enthused by the performance of the new system as he
sees no significant difference in per unit cost of processing and is wondering
if such a huge investment is justified when the company is under intensive
competitive pressure. However, the sales
representative insists that other companies who have purchased this system have
experienced significant reduction in cost of processing. You are a management consultant
retained by the company. You have been asked to look into this issue make a recommendation
to the CEO of the company. words required- 300-400