Standard Costing

This topic has 1 reply, 2 voices, and was last updated 11 years ago by John Moffat.

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April 22, 2015 at 11:38 pm #242244
Tyra
Member
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Hi, could you please help me with is question:
JC Co operates a bottling plant. The liquid content of a filled bottle of product T is 2 litres. During the filling process there is a 30% loss of liquid input due to spillage and evaporation. The standard price of the liquid is $1.20 per litre. The standard cost of the liquid per bottle of product T, to the nearest cent, is
The correct answer is $3.43, calculated as: (2 litres x [100/70] ) x $1.20
Could you explain the calculation of (100/70)? Why is it not (2 litres x 130%) x $1.20?
Thank you!
April 23, 2015 at 8:48 am #242277
John Moffat
Keymaster
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For every 100 litres that we buy, we expect to lose 30 litres and therefore to produce 70 litres.
Putting it the other way round, we therefore expect that for every 70 litres we produce, we will need to pay for 100 litres.
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