Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 44

Developing raw material cost standards 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:

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

Required:

a. Using the preceding data, calculate the raw material cost for one bottle of the new cleaner.

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b. Assume that the preceding costs are the current best estimates of the costs at which required quantities of the raw material can be purchased. Would you recommend that any other factors be considered in establishing the raw material cost standard for the new cleaner?

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c. Explain the process that would be used to develop the direct labor cost standard for the new product.

Step 1 of 3

Costs for a "batch" of 15 quarts:
Triphate solution (18 quarts @ $0.45 per quart	$ 8.10
Sobase granules (8 pounds @ $0.90 per pound)	7.20
Methage (4 ounces @ $1.40 per ounce)	5.60
Bottles (15 @ $0.25 each)	3.75
Total cost for 15 quarts	$24.65
Cost per quart ($24.65 / 15 quarts)	$1.643