Arctic Insulation Essay

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Arctic Insulation This case is set in 1980 in a waste paper converting plant in New York City in a company whose business is tied closely to environmental recycling trends. subject is product costing and cost control. The Arctic Insulation manufactures material used in home insulation. The company mixes scrap paper and fiber to form the insulation material that is bagged, sold and finally blown into home attics. The company has two methods of obtaining scrap paper. They can buy from the public at nominal rates (through paper drives and individual deliveries to the loading dock) or purchase bulk paper from scrap paper dealers. It is cheaper to buy from the publi c , but additional labor time is involved in removing the paper, in relatively small amounts, from customer cars and trucks at the loading dock and fonning the paper into bales. Direct labor is very expensive with rates at $19,000 per worker per year ($9.50 per hour) in 1979. In 1979, 2 l/2 bales weigh ing 300 pounds each were formed per hour by e ac h employee, on average. The process of forming bales is very time consuming because paper must be sorted by type (coated, newsprint, or fine paper), and by color (white, colored), must have any metal removed (staples or grommets), and must be cut to standard sizes. Also, after the bale is formed, it is bound with wire in a baling machine so that it can be stored pending further use. On the other hand, scrap paper can be purchased from paper dealers already sorted and cleaned and cut to standard sizes. The purchased paper is more expensive, but much less labor time is involved because the workers are only required to unload the paper from a truck and bale it. In 1979, 16 "purchased" bales weighing 300 pounds each were handled per hour by each employee, on average. Prices in the scrap paper industry are very volatile. Supply and demand

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