Martin Company manufactures a powerful cleaning solvent. The main ingredient in

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 30-litre containers at a cost of $130 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 $200 for an average shipment of one hundred 30-litre containers of Echol. Use of Echol: The bill of materials calls for 15.2 litres of Echol per bottle of cleaning solvent. About 5% of all Echol used is lost through spillage or evaporation (the 15.2 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 1-Compute the standard purchase price for one litre of Echol. 2-Compute the standard quantity of Echol (in litres) per saleable bottle of cleaning solvent. 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

Explanation / Answer

Answer 1. Standard Purchase Price Per Ltr. Purchase Cost per 30 Ltr Container $130.00 Less: Cash Discount - 3%                                   3.90 Net Purchase Price - 30 Ltr Container                              126.10 Add: Shipment Cost ($200/100 Containers)                                   2.00 Total Purchase Cost of 30 Ltr Container                              128.10 Standard Purchase Cost per Ltr 4.27 Answer 2. Purchase of Echol - 30 Ltr Container @ $130                                3,000 Spilage or evaporation - 5% I Ltrs - 150 Lts                                    150 Total Ltrs Available                                2,850 No. Of Bottels Made - 15.20 Ltr each                                    188 Less: Every 41 st Bottel rejected                                         5 No Of Bottels available for sale                                    183 Total Ltr Available for Sale                                2,774 Standard Qty of Echol (in ltr) per saleable bottle                                      16 Answer 3 Purchase Cost per Ltr                                   4.27 Standard Qty of Echol (in ltr) per saleable bottle                                      16 Standard Cost per Bottle                                70.19

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