Question

Lakeway Manufacturing Co. manufactures and sells household cleaning products. The company's research department has developed a new cleaner for which a standard cost must be determined. The new cleaner is made by mixing 9 quarts of triphate solution and 3 pounds of sobase granules and boiling the mixture for several minutes. After the solution has cooled, 4 ounces of methage are added. This "recipe" produces 8 quarts of the cleaner, which is then packaged in 1-quart plastic dispenser bottles. Raw material costs are as follows:

Triphate solution	$	0.44	per quart
Sobase granules		0.79	per pound
Methage		1.23	per ounce
Bottle		0.06	each

a. Using the preceding data, calculate the raw material cost for one bottle of the new cleaner. (Do not round intermediate calculations. Round final answer to 3 decimal places.)

Cost per bottle:

b. Assume that the preceding costs are the current best estimates of the costs at which required quantities of the raw material can be purchased. What other factors would you recommend to be considered in establishing the raw material cost standard for the new cleaner? (Select all that apply.)

Decrease in selling price

Possible cost increases during coming year

Spillage / spoilage / waste in the manufacturing process

Change in the labor cost

Answer 1

Solution a:

Computation of raw material cost for one bottle of the new cleane
Triphate solution (9*0.44)	$3.960
Sobase Granules (3*0.79)	$2.370
Methage (4*1.23)	$4.920
Total cost for 8 Quarts	$11.250
Quart production	8
Cost per quart   ($11.25/8)	$1.406
Add: Cost of 1 Bottle	$0.060
Total raw material cost for one bottle of the new cleane	$1.466

Solution b:

Other factors recommend to be considered in establishing the raw material cost standard for the new cleaner are as under:

1. Possible cost increases during coming year

2. Spillage / spoilage / waste in the manufacturing process