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

Solution:
Requirement 1 :   Standard Price for one quart of Ammoniol
Purchase Price	$155
Less: Discount	($3.10)
[$155*2%]
Add: Shipping charges	$5.28
[$264/50 Containers]
Labor charges	$1.44
[2*1.5*$24/50]
Standard price per 10 gallon Container	$158.62
Total Quart in a 10 gallon container	10 * 4 = 40
Standard Price for one quart of Ammoniol is   =      $158.62/40 = $3.97
Requirement 2 :   Standard quantity in quarts per saleable bottle of Ace Zappo
Net Quantity of Ammoniol per bottle	4.86 quart
Normal Wastage(Spillage and Evaporation	0.54 quart
[4.86/90%]*10%
Gross Quantity of Ammoniol is	5.40 quart
As there is statistics, that every 26 th bottle is rejected at final selection, out of
every 26 bottles 25 bottles are sold.
Quantity of Ammoniol required for 26 bottles = 5.40 quart * 26 = 140.40 quart
So for sale of 25 bottles standard quantity required is 140.40 quart.
Therefore Standard quantity per saleble bottle = 140.40/25 = 5.62
Requirement 3 :   Standard Cost of Ammoniol per saleable bottle of Ace Zappo
=    Standard quantiy per saleble bottle * standard price per quart of Ammoniol
=     5.62 * $3.97
=     $22.31
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