Paradox Manufacturing Limited (PML) produces a chemical, Paradox, which is used to kill budworms. Analysis has...

Transcribed Image Text:

Paradox Manufacturing Limited (PML) produces a chemical, Paradox, which is used to kill budworms. Analysis has shown that a ten litre container of Paradox is made from 5 litres of Deet and 6 litres of Balox. For fiscal 2001, Deet was forecasted to cost $12.00 per litre and Balox was expected to retail for S6.00 per litre. The manufacture of Paradox involves heating the Deet and Balox to exactly 110 degrees celsius and then mixing the two together. As a result of the heating of the ingredients, some input is lost due to evaporation. The budget for 2001 estimated that sales and production volume would be 150,000 litres of Paradox. Due to the massive and unexpected infestation of the budworm in Northern Ontario, the sales and production volume was actually 206,000 litres. PML buys the necessary ingredients and produces Paradox to order, the risk of environmental damage resulting from the storage of Paradox (and the related liability insurance costs) is too high for the company to consider any other policy. Because of the increase in expected sales volume on January 1, 2001, the price of Balox increased to $9.00 per litre, and the price of Deet decreased to S11.00 per litre. The results for 2001 were interesting. Due to the increase in the price of Balox, every effort was made to reduce Balox evaporation. Less care was devoted to the Deet. The actual quantities used were 123,826 litres of Deet and 115,083 litres of Balox. The president of PML was very pleased with the results for the year. With sales increasing, profits were of course greater than expected. Paradox sells for $32.00 per litre; standard costs including materials, labor and overhead amount to $20.00 per litre. With selling and administrative (all fixed) costs of S1,320,000, profit was estimated to be $480,000. Actual profits camed were $731,767 (all revenues and expenses were as predicted with the exception of raw materials). A large bonus was planned for workers and management and the president planned to propose a large dividend for shareholders at the next meeting of the board of directors. Required: Assume that you are the PML controller and have just recently been hired. The president has asked you to prepare a detailed report explaining why profits were greater than expected in 2001. Paradox Manufacturing Limited (PML) produces a chemical, Paradox, which is used to kill budworms. Analysis has shown that a ten litre container of Paradox is made from 5 litres of Deet and 6 litres of Balox. For fiscal 2001, Deet was forecasted to cost $12.00 per litre and Balox was expected to retail for S6.00 per litre. The manufacture of Paradox involves heating the Deet and Balox to exactly 110 degrees celsius and then mixing the two together. As a result of the heating of the ingredients, some input is lost due to evaporation. The budget for 2001 estimated that sales and production volume would be 150,000 litres of Paradox. Due to the massive and unexpected infestation of the budworm in Northern Ontario, the sales and production volume was actually 206,000 litres. PML buys the necessary ingredients and produces Paradox to order, the risk of environmental damage resulting from the storage of Paradox (and the related liability insurance costs) is too high for the company to consider any other policy. Because of the increase in expected sales volume on January 1, 2001, the price of Balox increased to $9.00 per litre, and the price of Deet decreased to S11.00 per litre. The results for 2001 were interesting. Due to the increase in the price of Balox, every effort was made to reduce Balox evaporation. Less care was devoted to the Deet. The actual quantities used were 123,826 litres of Deet and 115,083 litres of Balox. The president of PML was very pleased with the results for the year. With sales increasing, profits were of course greater than expected. Paradox sells for $32.00 per litre; standard costs including materials, labor and overhead amount to $20.00 per litre. With selling and administrative (all fixed) costs of S1,320,000, profit was estimated to be $480,000. Actual profits camed were $731,767 (all revenues and expenses were as predicted with the exception of raw materials). A large bonus was planned for workers and management and the president planned to propose a large dividend for shareholders at the next meeting of the board of directors. Required: Assume that you are the PML controller and have just recently been hired. The president has asked you to prepare a detailed report explaining why profits were greater than expected in 2001.

Answer rating: 100% (QA)

Required solution Calculation of Standard Cost Standard Consumption for 1 ltr of Paradox 5 litres of Deet and 6 litres of Balox Standard Production Pl... View the full answer