EverGreen Store, Singapore, manufactures plain white and solid-colored T-shirts. Budgeted inputs include the following:

Budgeted sales and selling price per unit are as follows:

EverGreen has the opportunity to switch from using its current dye to using an environmentally friendly dye that costs $1.50 per ounce. The company would still need 4 ounces of dye per shirt. EverGreen is reluctant to change because of the increase in costs (and decrease in profit), but the Environmental Protection Agency has threatened to fine the company $140,000 if it continues to use the harmful but less expensive dye.

Required

1. Given the preceding information, would EverGreen be better off financially by switching to the environmentally  friendly dye? (Assume all other costs would remain the same.)

2. If EverGreen chooses to be environmentally responsible and switches to the new dye, the changes in the process will allow production managers to implement Kaizen costing. If it can reduce fabric and labor costs each by 1% per month on all the shirts it manufactures, at the end of 12 months how close will it be to the profit it would have earned before switching to a more expensive dye? (Round to the nearest dollar for calculating cost reductions.)

3. Refer to requirement 2. How could the reduction in material and labor costs be accomplished? Are there any problems with this plan?

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$ Price 2 per meter $ 20 per DMLH $ 0.75 per ounce Fabric Labor Dye *For colored T-shirts only Quantity 0.75 meter per unit 0.25 DMLH per unit 4 ounces per unit Cost per unit of output $9 per unit $5 per unit $3 per unit