Question

Donath Corporation manufactures a variety of liquid lawn fertilizers, including a very popular product called Luxury Green. Data about Luxury Green and Sheen, a major ingredient, follow.

Expected operations:

Sheen is purchased in 30-gallon drums at a cost of $75 per drum. A 3% cash discount is offered by Sheen's manufacturer for prompt payment of invoices, and Donath takes advantage of all discounts offered.

Donath normally purchases 200 drums of Sheen at a time, paying shipping fees of $2,960 per shipment.

Each gallon of Luxury Green requires three quarts of Sheen; however, because of evaporation and spills, Donath loses 4% of all Sheen that enters production. (Recall that there are four quarts in a gallon.)

Actual operations:

For the period just ended, Donath purchased 1,000 drums of Sheen at a total cost of $97,600, which reflects discounts and shipping. There was no beginning inventory, but an end-of-period inventory revealed that 60 drums were still on hand.

Manufacturing activity output totaled 102,000 gallons of Luxury Green.

Assume that the company computes variances at the earliest point in time.

Required: SHOW ALL WORK/CALCULATIONS

Compute the standard purchase price for one gallon of Sheen. (Round your answer to 2 decimal places.)

Compute the standard quantity of Sheen to be used in producing one gallon of Luxury Green. Express your answer in quarts. (Round your answer to 3 decimal places.)

Compute the direct-material price variance for Sheen. (Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance)

Answer 1

Req a:
Cost price			75
Less: CD			-2.25
Add: Freight cost (2960/200)			14.8
Purchase cost per drum			87.55
Req b:
RM required per unit of output			3
Normal loss as % of input			4%
Std input required per unit of output			3.125
	(3 / 96%)
Req c:
Actual qty purchsed:1000 drums
Actual price (97600 /1000) : 97.60
Std price: 87.55
Material price variance = Actual qty purchased (Std price-Actual price)
		1000 (87.55 - 97.60 ) = 10050 unfav