Duran Orr, plant manager of Meridian Paper Company’s papermaking mill, was looking over the cost of production reports for July and August for the Papermaking Department. The reports revealed the following:

Duran was concerned about the increased cost per ton from the output of the department. As a result, he asked the plant controller to perform a study to help explain these results. The controller, Alicia Sparks, began the analysis by performing some interviews of key plant personnel in order to understand what the problem might be. Excerpts from an interview with Josh Wilson, a paper machine operator, follow: 

Josh: We have two papermaking machines in the department. I have no data, but I think paper machine 1 is applying too much pulp, and thus is wasting both conversion and materials resources. We haven’t had repairs on paper machine 1 in a while. Maybe this is the problem.

Alicia: How does too much pulp result in wasted resources?

Josh: Well, you see, if too much pulp is applied, then we will waste pulp material. The customer will not pay for the extra weight. Thus, we just lose that amount of material. Also, when there is too much pulp, the machine must be slowed down in order to complete the drying process. This results in a waste of conversion costs.

Alicia: Do you have any other suspicions?

Josh: Well, as you know, we have two products—green paper and yellow paper. They are identical except for the color. The color is added to the papermaking process in the paper machine. I think that during August these two color papers have been behaving very differently. I don’t have any data, but it just seems as though the amount of waste associated with the green paper has increased.

Alicia: Why is this?

Josh: I understand that there has been a change in specifications for the green paper, starting near the beginning of August. This change could be causing the machines to run poorly when making green paper. If this is the case, the cost per ton would increase for green paper. Alicia also asked for a database printout providing greater detail on August’s operating results.

September 9 Requested by: Alicia Sparks

Papermaking Department—August detail

Assuming that you’re Alicia Sparks, write a memo to Duran Orr with a recommendation to management. You should analyze the August data to determine whether the paper machine or the paper color explains the increase in the unit cost from July. Include any supporting schedules that are appropriate.

Transcribed Image Text:

August July $300,000 150,000 Pulp and chemicals Conversion cost Total cost... Number of tons Cost per ton . $307,000 $450,000 $460,000 + 1,150 400 375