Reynolds Manufacturing Company manufactures a product that is processed in three sequential departments. Lately, the...
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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 the introduction of state-of-the-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 waste and eliminating direct labor cost (the new equipment will perform many functions that previously required manual labor). The new system will cost $ 5,480,000 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 and the following partial production cost report for Process #1 prepared by the company accountant was made available.
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