You are the production manager for Breakfast Grain Corporation, a manufacturer of four cereal products. The company's best-selling prod- uct is Sugaroos, a sugar-coated puffed rice cereal. Yesterday, Clark Winslow, the controller, reported that the production cost for each box of Sugaroos has increased approximately 22 percent in the last four months. Because the company is unable to increase the selling price for a box of Sugaroos, the increased production costs will reduce profits significantly.
Today, you received a memo from Gilbert Rom, the company president, asking you to review your production process to identify inefficiencies or waste that can be eliminated. Once you have completed your analysis, you are to write a memo presenting your findings and suggesting ways to reduce or eliminate the problems. The president will use your information during a meeting with the top management team in ten days.
You are aware of previous problems in the Baking Department and the Packaging Department. Winslow has provided you with process cost reports for the two departments. He has also given you the following detailed summary of the cost per equivalent unit for a box of Sugaroos cereal:
|
Baking Department:
|
April
|
May
|
June
|
July
|
|
Direct materials
|
$1.25
|
$1.26
|
$1.24
|
$1.25
|
|
Direct labor
|
0.50
|
0.61
|
0.85
|
0.90
|
|
Overhead
|
0.25
|
0.31
|
0.34
|
0.40
|
|
Department totals
|
$2.00
|
$2.18
|
$2.43
|
$2.55
|
|
Packaging Department:
|
|
|
|
|
|
Direct materials
|
$0.35
|
$0.34
|
$0.33
|
$0.33
|
|
Direct labor
|
0.05
|
0.05
|
0.04
|
0.06
|
|
Overhead
|
0.10
|
0.16
|
0.15
|
0.12
|
|
Department totals
|
$0.50
|
$0.55
|
$0.52
|
$0.51
|
|
Total cost per equivalent unit
|
$2.50
|
$2.73
|
$2.95
|
$3.06
|
1. In preparation for writing your memo, answer the following questions:
a. For whom are you preparing the memo? Does this affect the length of the memo? Explain.
b. Why are you preparing the memo?
c. What actions should you take to gather information for the memo? What information is needed? Is the information that Winslow provided sufficient for analysis and reporting?
d. When is the memo due? What can be done to provide accurate, reliable, and timely information?
2. Based on your analysis of the information that Winslow provided, where is the main problem in the production process?
3. Prepare an outline of the sections you would want in your memo.