Chapter 5, Problem 5.48BE

Sustainability and process costing (Learning Objective 3)

SUSTAINABILITY

Sandler Industries manufactures plastic bottles for the food industry. On average, Sandler pays $72 per ton for its plastics. Sandler’s waste-disposal company has increased its waste-disposal charge to $54 per ton for solid and inert waste. Sandler generates a total of 500 tons of waste per month.

Sandler’s managers have been evaluating the production processes for areas to cut waste. In the process of making plastic bottles, a certain amount of machine “drool” occurs.

Machine drool is the excess plastic that drips off the machine between molds. In the past, Sandler has discarded the machine drool. In an average month, 140 tons of machine drool are generated.

Management has arrived at three possible courses of action for the machine drool issue:

1. 1. Do nothing and pay the increased waste-disposal charge
2. 2. Sell the machine drool waste to a local recycler for $15 per ton.
3. 3. Reengineer the production process at an annual cost of $70,000. This change in the production process would cause the amount of machine drool generated to be reduced by 40% each month. The remaining machine drool would then be sold to a local recycler for $15 per ton.