Question

Martin Company manufactures a powerful cleaning solvent. The main ingredient in the solvent is a raw material called Echol. Information on the purchase and use of Echol follows:

  

Purchase of Echol: Echol is purchased in 20-litre containers at a cost of $150 per container. A discount of 3% is offered by the supplier for payment within 10 days, and Martin Company takes all discounts. Shipping costs, which Martin Company must pay, amount to $220 for an average shipment of one hundred 20-litre containers of Echol.

  

Use of Echol: The bill of materials calls for 16.15 litres of Echol per bottle of cleaning solvent. About 5% of all Echol used is lost through spillage or evaporation (the 16.15 litres above is the actual content per bottle). In addition, statistical analysis has shown that every 41st bottle is rejected at final inspection because of contamination.

  

Required:

1.	Compute the standard purchase price for one litre of Echol. (Do not round intermediate calculations and round final answer to 2 decimal places.)

Compute the standard quantity of Echol (in litres) per saleable bottle of cleaning solvent. (Round intermediate calculations and final answer to 2 decimal places.)

3.	Using the data from parts (1) and (2), prepare a standard cost card showing the standard cost of Echol per bottle of cleaning solvent. (Round intermediate calculations and final answers to 2 decimal places.)

Answer 1

Ques 1
Cost per	20	litre container	150
Less:	3%	cash discount	4.5
Net cost			145.5
Add shipping cost	220/100		2.2
total cost(a)			$ 147.70
No.of litres per container(b)			20
std cost	(a/b)		$       7.39
Ques 2
Content per bill of materials			16.15
Add:allwoance for spoilage
16.15/(1-0.05)	17.00
17-16.15litres	0.85		0.85
Total			17
Add:allwance for rejected units			0.43
17/40
std quanity per salebale bottle			17.43
Qus 3
Item	Std quantity	Std price	Std cost per bottle
Echol	17.43	$                     7.39	$ 128.81