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 55-gallon drums at a cost of $65 per drum. A 2% 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 $2,660 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 1,500
drums of Sheen 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 Luxury Green.Assume that the company computes variances at the earliest point in time.Required: A. Compute the standard purchase price for one gallon of Sheen.B. Compute the standard quantity of Sheen to be used in producing one gallon of Luxury Green. Express your answer in quarts.C. Compute the direct-material price variance for Sheen.D. How much Sheen was used in manufacturing activity and how much should have been used? Express your answer in quarts.
What will be an ideal response?
A.
| Purchase price per drum | $65.00 |
| Less: 2% discount | (1.30) |
| ? | $63.70 |
| Shipping fee per drum ($2,660 ÷ 200 drums) | 13.30 |
| Total | $77.00 |
| Total purchase price ($77) ÷ 55 gallons = $1.40 per gallon |
C.
| Standard cost of purchases (1,500 drums × $77) | $115,500 |
| Less: Actual cost of purchase | 118,100 |
| Direct-material price variance | $2,600 U |
Standard usage: 104,000 gallons × 3.125 = 325,000 quarts
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