Problem: Lakeway Manufacturing Co. manufactures and sells cleaning products. The company's research department has developed a new cleaner for which a standard cost miust be determined. The new cleaner is made by mixing 7 quarts of triphate solution and 4 pounds of sobase granules and boiling the mixture for several minutes. After the solution has colled, 2 ounces of methage are added.
A standard cost must be determined. The new cleaner is made by mixing 7 quarts of triphate solution and 4 pounds of sobase produces 5 quarts of the cleaner, which is then packaged in one-quart plastic dispenser bottles. Raw material costs are:
Triphate solution $0.26 per quart
Sobase granules 0.87 per pound
Methage 1.17 per ounce
Bottle 0.17 each
a. Using the preceding data, calculate the raw material cost for one bottle of the new cleaner. (Do not round your intermediate calculations. Round your final answer to 3 decimal places.)
b. Assume that the preceding costs are the current best estimates of the costs at which required quantities of the raw material cost standard for the new cleaner? (Select all that apply.)
1. Decrease in selling price
2. Possible cost increases during coming year.
3. Spillage /spoilage/ waste in the manufacturing process.
4. Change in the labor cost
c. Explain the process that would be used to develop the direct labor costs standard for the new product.