A Soft Drink Company Has Three Bottling Plants Throughout the Country

question 22

Essay

A soft drink company has three bottling plants throughout the country. Bottling occurs at the regional level because of the high cost of transporting bottled soft drinks. The parent company supplies each plant with the syrup. The bottling plants combine the syrup with carbonated soda to make and bottle the soft drinks. The bottled soft drinks are then sent to regional grocery stores.
The bottling plants are treated as costs centers. The managers of the bottling plants are evaluated based on minimizing the cost per soft drink bottled and delivered. Each bottling plant uses the same equipment, but some produce more bottles of soft drinks because of different demand. The costs and output for each bottling plant are: $$\begin{array} { | l | r | r | r | } \hline & \text { A } & \text { B } & \text { c } \\\hline \text { Units Produced } & 10,000,000 & 20,000,000 & 30,000,000 \\\hline \text { Variable Costs } & \$ 200,000 & \$ 450,000 & \$ 650,000 \\\hline \text { Fixed Costs } & \$ 1,000,000 & \$ 1,000,000 & \$ 1,000,000 \\\hline\end{array}$$ Required:
a. Estimate the average cost per unit for each plant.
b. Why would the manager of plant A be unhappy with using the average cost as the performance measure?
c. What is an alternative performance measure that would make the manager of plant A happier?
d. Under what circumstances might the average cost be a better performance measure?

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Definitions:

Conservative Reaction

The response by conservative groups or individuals against changes or reforms that they perceive as threatening to traditional values or structures.

Enlightenment Thinking

An 18th-century intellectual movement that highlighted the importance of logic, self-reliance, and doubt about established beliefs.

Social Analysis

The systematic examination of the interactions, norms, and structures within a society to understand and explain social phenomena.

Durkheim

Refers to Emile Durkheim, a foundational sociologist who introduced concepts such as social facts, collective conscience, and anomie in the study of societal norms and structures.