PROBLEM 10–24 Setting Standards [LO1]
Quintessence, a small cosmetics company in the south of France, plans to introduce a new body oil, called Dynamique, for which it needs to develop a standard product cost. The follow- ing information is available on the production of Dynamique:
a. The Dynamique base is made by mixing high-grade lanolin and alcohol. Both the lanolin and the alcohol lose some volume during the mixing process. As a result, each 100-litre batch of Dynamique base requires 100 litres of lanolin and 8 litres of alcohol.
b. After the base has been prepared, a highly concentrated jasmine powder is added to impart a pleasing scent. Only 200 grams of the powder is added to each 100-litre batch. The addition of the jasmine powder does not significantly change the total liquid volume.
c. Both the lanolin and the jasmine powder are subject to some contamination from natu- rally occurring materials. For example, the jasmine powder often contains some traces of insects that are not detected and removed when the jasmine petals are processed. Occasionally such contaminants interact in ways that result in an unacceptable product with an unpleasant odour. About one 100-litre batch in twenty is rejected as unsuitable for sale for this reason and is thrown away.
d. It takes a worker two hours to process one 100-litre batch of Dynamique. Employees work an eight-hour day, including two hours per day for lunch, rest breaks, and cleanup. Required:
1. Determine the standard quantity for each of the raw materials needed to produce an acceptable 100-litre batch of Dynamique.
2. Determine the standard labour time allowed to produce an acceptable 100-litre batch of Dynamique.
3. The standard prices for direct materials and direct labour in euros (€) appear below:
Prepare a standard cost card for materials and labour for one acceptable 100-litre batch of Dynamique.