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 50-gallon drums at a cost of $65 per drum. A 1% 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 $2,040 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 1,300 drums of Sheen at a total cost of $109,400, which reflects discounts and shipping. There was no beginning inventory, but an end-of-period inventory revealed that 50 drums were still on hand.
• Manufacturing activity output totaled 116,000 gallons of Luxury Green.

Use the information to compute the following:

Required:
a. Compute the standard purchase price for one gallon of Sheen. (Do not round your intermediate calculations. Round your answer to 2 decimal places.)
b. 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.)
c. 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)

Standard purchase price = ?

Standard quantity = ?

Direct-material price variance = ?

Answer 1