Production of all IL’s tea-based products begins with the extraction of tea extract from tea leaves. Tea leaves are cleaned, batched and extracted with an integrated single-pass tea extraction system which is installed in each plant. The system produces tea extract which is cooled, clarified and formulated for further processing. The tea extract is subsequently used as the base for tea drinks and as an additive for other tea-based products such as ice-cream. Further processing of tea-based products is marked by high degree of variation. Each type of tea-based product has certain unique manufacturing processes. For example, production of tea-flavoured ice-cream involves pasteurization, homogenization and ageing processes and the production of tea drink requires coagulation, filtration, and chlorination of water. Equipment associated with those unique processes (e.g. pasteurizer) is used in the production of relevant products (e.g. ice-cream) only. Some manufacturing processes such as mixing and cooling are shared by multiple products but at different stages of their production. For example, mixing process takes place at the beginning of the production of tea-flavoured ice-cream but occurs in the middle of the production of tea-flavoured lollipop. As such, capacity management of shared equipment like mixers and coolers has become a major issue for the company. To cope with the complexity in its manufacturing operations, IL invests heavily in flexible manufacturing systems and information technology. Each plant has its own computer based information system that is connected to the central mainframe computer at the headquarters.

Question (1)

Conduct some research into costing techniques that IL (Innovation Ltd. (IL)) might find useful. Based on this research and using the details in the case, choose a specific technique (or set of techniques) that you believe would be most suitable. Describe specifically how your chosen technique(s) could be used by providing tangible examples of how they would operate within IL. It should be clear from these examples how IL would determine a product cost for their products. Also, briefly describe why you consider your chosen technique(s) to be superior to other techniques.

Answer rating: 100% (QA)

For any manufacturing industry the biggest challenge is always to determine the right products mix and to price the product in order to achieve the desired profits and recover the total cost that is v... View the full answer