Question

1. Calculation of Standard Costs

Ace Janitorial Supply manufactures a cleaning solvent, Ace Zappo.

Purchase of Ammoniol: The main ingredient is a raw material called Ammoniol. It is purchased in 10-gallon containers at a cost of $155 per container, terms 2/10 n/30. Ace takes advantage of all cash discounts. Shipping terms are FOB Shipping Point; and charges amount to $264 for the shipment of fifty (50) of the 10-gallon containers of Ammoniol. Hazardous materials handlers are required at the receiving dock when the product arrives. These two employees, at an average labor rate of $24 per hour, require one and one-half (1½) each to unload and store the total of fifty (50) 10-gallon containers of Ammoniol.

Use of Ammoniol: The bill of materials calls for 4.86 quarts of Ammoniol per bottle of Ace Zappo Cleaning Solvent, the finished product. Approximately 10% of all Ammoniol is lost through spillage and evaporation (the 4.86 quarts in the actual content per bottle after evaporation and spillage). In addition, statistics show that every 26^th bottle is rejected at final inspection.

Required: (1) Compute the standard price for one quart of Ammoniol.

                  (2) Compute the standard quantity in quarts per saleable bottle of Ace Zappo.

                  (3) Compute the standard cost of Ammoniol per saleable bottle of Ace Zappo.

                  Note: Show your work. Also, for consistency, please round your answers in all parts of the problem, (1) – (3), to two decimal places. Examples are $7.46, for (1) and (3), and 8.42 quarts for part (2).

Answer 1

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