P1018 Developing Standard Costs in the perfume center of Gra

P10-18 Developing Standard Costs in the perfume center of Grasse in southern France. The L\'Essence is a small cosmetics company located company plans to introduce a new body oil, called Energique, for which it needs to develop a standard product cost. The fol lowing information is available on the production of Energique a. The Energique base is made by mixing select lanolin and alcohol. Some loss in volume occurs for both the lanolin and the alcohol during the mixing process. As a result, each 100-liter batch of Energique base requires 100 liters of lanolin and 8 liters of alcohol. b. After the base has been prepared, a highly concentrated lilac powder is added to impart a pleasing scent. Only 200 grams of the powder is added to each 100-liter batch. The addition of the lilac powder does not affect the total liquid volume. Both the lanolin and the lilac powder are subject to some contamination from naturally occurring materials. For examplé, the lilac powder often contains some traces of insects that are not detected and removed when the lilac petals are processed. Occasionally such contaminants interact in ways that result in an unacceptable product with an unpleasant odor. About one 100-liter batch in twenty-one is rejected as unsuitable for sale for this c. reason and is thrown away d. It takes a worker(two hours to process one 100-liter batch of Energique. Employees work an éight-hour day, including two hours per day for lunch, rest breaks, and cleanup. d quantity for each of the raw materials needed to produce an 1. Determine the standar acceptable 100-liter batch of Energique. 2. Determine the standard labor time to produce an acceptable 100-liter batch of Energique 3. The standard prices for the materials and the labor in French francs (FF) appear below 80 FF per liter 10 FF per liter 5 FF per gram 60 FF per hour Lanolin Alcohol Lilac powder Direct labor cost Prepare a standard cost card for materials and labor for one acceptable 100-liter batch of Energique (CMA, adapted)

Solution

SOLUTION 1.Standard quantity As per point c, to produce 20 acceptable 100 litre batch, we need to produce 21 (100 litres )batch. Hence ratio of input output as per batch is 21:20. And also as per point a, we need 100 litre of lalolin and 8 litres of alcohol tpo produce one 100 litre of energique. so, we will consider both these points for the calculations Material calculation Amount Units Laloline (21/20)*100 105 Litres Alcohol (21/20)*8 8.4 Litres Lilac powder (21/20)*200 210 grams 2. Labour time As per point d, effective time of labour per day is (8-2)= 6 hours hence to produce 100 litre batch, it require 2 effective hours i.e. 8/6*2= 2.67 normal hours and to calculate acceptable 100 litre batch , we need to take effect of point c also hence to produce 1 acceptable 100 litre batch, we require 2.67*21/20= 2.8035 hours 3. standard cost Cost Units Cost per unit total cost Laloline 105 80 8400 Alcohol 8.4 10 84 Lilac powder 210 5 1050 Labour 2.8035 60 168.21 total cost 9702.21