Zoe Company Corporation manufactures a variety of liquid lawn fertilizers, inclu

Question

Zoe Company Corporation manufactures a variety of liquid lawn fertilizers, including a very popular product called SuperFood. Data about SuperFood and XP, a major ingredient, follow.
Expected operations:

XP is purchased in 55-gallon drums at a cost of $65 per drum. A 2% cash discount is offered by XP's manufacturer for prompt payment of invoices, and Vanderhaus takes advantage of all discounts offered.

Vanderhaus normally purchases 200 drums of XP at a time, paying shipping fees of $2,660 per shipment. Each gallon of SuperFood requires three quarts of XP; however, because of evaporation and spills, Zoe loses 4% of of all XP that enters production.
Actual operations:

For the period just ended, Zoe purchased 1,500 drums of XP at a total cost of $118,100, which reflects discounts and shipping. There was no beginning inventory, but an end-of-period inventory revealed that 30 drums were still on hand.

Manufacturing activity output totaled 104,000 gallons of SuperFood. Compute the material price standard

Explanation / Answer

Hi,

Please find the answer as follows:

Scenario 1: If Partial Shipment is not Possible

Standard Material Purchase Cost = 1500*65 = 97500

- Cash Discount on Purchase Price = 1500*65*.02 = 1950

Net Purchase Price = 95550

Number of Shipments required to ship 1500 hundred drums = 1500/200 = 7.5

Total Number of Shipments = 8 (assuming partial shipment is not possible)

Shipping Cost = 8*2660 = 21280

Material Price Standard = Net Purchase Price + Shipment Cost = 95550 + 21280 = 116830

Scenario 1: If Partial Shipment is Possible

Total number of shipments would be = 7.5 resulting in total shipment cost of = 7*2660 + .5*2660 = 19950

Material Price Standard = Net Purchase Price + Shipment Cost = 95550 + 19950 = 115500

Thanks.

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