Ozark Manufacturing Co. manufactures and sells household cleaning products. The

Question

Ozark 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 18 quarts of triphate solution and 8 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 15 quarts of the cleaner, which is then packaged in one-quart plastic dispenser bottles. Raw material costs are:

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.)

Triphate solution $ 0.45 per quart Sobase granules 0.90 per pound Methage 1.40 per ounce Bottle 0.25 each

Explanation / Answer

The answer is Possible cost increases during coming year. Decrease in selling price has nothing to do with material cost variances. It affects sales variance. Spillage / spoilage / waste in the manufacturing process will affect material usage variance, and not material price variance. Change in the labor cost will affect labour rate variance, and has nothing to do with raw material variance. Hope this helps!

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