Exercise 10-1 Setting Standards; Preparing a Standard Cost Card [LO1]
Svenska Pharmicia, a Swedish pharmaceutical company, makes an anticoagulant drug. The main ingredient in the drug is a raw material called Alpha SR40. Information concerning the purchase and use of Alpha SR40 follows:
Purchase of Alpha SR40: The raw material Alpha SR40 is purchased in 2-kilogram containers at a cost of 3,000 Kr per kilogram. (The Swedish currency is the krona, which is abbreviated as Kr.) A discount of 2% is offered by the supplier for payment within 10 days and Svenska Pharmicia takes all discounts. Shipping costs, which Svenska Pharmicia must pay, amount to 1,000 Kr for an average shipment of ten 2-kilogram containers.
Use of Alpha SR40: The bill of materials calls for 6 grams of Alpha SR40 per capsule of the anticoagulant drug. (A kilogram equals 1,000 grams.) About 4% of all Alpha SR40 purchased is rejected as unsuitable before being used to make the anticoagulant drug. In addition, after the addition of Alpha SR40, about 1 out of every 26 capsules is rejected at final inspection, due to defects of one sort or another in the capsule.
Compute the standard purchase price for one gram of Alpha SR40. (Round your answer to 2 decimal places. Omit the "Kr" sign in your response.)
Compute the standard quantity of Alpha SR40 (in grams) per capsule that passes final inspection. (Round your answer to 2 decimal places.)
Using the data from (Requirements 1 and 2) above, prepare a standard cost card showing the standard cost of Alpha SR40 per capsule of the anticoagulant drug. (Round your answers to 2 decimal places.)
Item Standard Standard Standard
Quantity per Price per Cost per
Capsule Gram Capsule
Alpha SR40 _________grams _______Kr ________Kr
Please see the attachment.
Cost per 2 kilogram container 6,000 3,000 per kg X 2 kg
Less: 2% cash discount 120
Net cost 5,880
Add freight cost per 2 kilogram container ...
The solution explains how to prepare a standard cost card.