Posted: July 12th, 2016
Starling Coating produces weatherproofing coatings that protect metal from oxidation. One of Starling’s patented coatings, zurtan, is composed of two inputs, magna45 and zelon. While both inputs are required, they can be substituted for each other. The following table describes how many P gallons of magna45 and zelon are required to produce a single batch of Zurtan.
Gallons of Magna45 and Zelon needed to make one batch of Zurtan
Magna 45 Zelon
In other words, one batch of zurtan can be produced using one gallon of magna45 and 30 gallons of zelon, or 2 gallons of magna45 and 15 gallons of zelon, or 3 gallons of magna45 and 10 gallons of zelon, and so forth. Starling has a long-term contract with a defense contractor to supply a fixed quantity of zurtan at a fixed price, neither of which can be altered. The price of zurtan is far above its manufacturing cost. Starling uses a standard cost system and at the beginning of the year establishes the standard quantities of the various raw materials used to manufacture its coatings.
Before Starling’s fiscal year begins, management estimates that magna45 will have a standard price of $4 per gallon and zelon will have a standard price of $5 per gallon.
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