Luxor Cosmetics Executive Summary
Question 1
2008 Variable manufacturing cost as a percentage of selling price
Product (Variable manufacturing cost/WSP Production) Mark up
Lipstick 16.8/21 80% (21/16.8)-1 25%
Nail polish 10.5/15 70% (15/10.5)-1 43%
Creams 2.8/5.6 50% (5.6/2.8)-1 100% 2010
Product
Lipstick 15.3/18 85% (18/15.3)-1 18%
Nail polish 9.3/11.6 80% (11.6/9.3)-1 25%
Creams 3.3/6.6 50% (6.6/3.3)+1 100%
*Note that these calculations are done for goods produced in the year in question Question 2
(cost of goods manufactured in 2008/ sales value for units produced in 2008) * ending inventory 2008
(16.8/21) * 11.5
9.748 million
Question 3
Luxor uses a FIFO inventory system, so the inventory that is sold first actually may come from prior years. Because of this, goods that are sold in each year need to be separated into goods produced in that year and goods produced in prior years. This is necessary to do because the percentage of the COGS that is variable is slightly different from year to year.
2009 Cost of Goods Sold:
6.3M from inventory on hand at beginning of year (produced in 2008 under FIFO)
2.3M from inventory produced in 2009
2010 Cost of Goods Sold:
8.2M from inventory on hand at beginning of year (produced in 2009 under FIFO)
0.3M from inventory produced in 2010
We now must determine the percentage of COGS that is variable for goods produced in 2008, 2009 and 2010:
2008
10.5M/(10.5M+0.7M) =93.75%
2009
9.8M/(9.8M+0.7M) = 93.333333%
2010
9.3M/(9.3M+0.6M) =93.939393%
We now apply these percentages to the COGS for 2009 and 2010 to determine the total variable cost for each year.
2009 Variable COGS = (6.3M * .9375) + (2.3M * .93333333) = $8.0529M
2010 Variable COGS = (8.2M * .93333333) + (0.3M * .9393939393) = $7.9352M
Assuming the variable manufacturing cost per unit was the same in 2009 and 2010, a higher variable cost of goods sold means that more units were sold. Since the variable COGS in 2009 is
2008 Variable manufacturing cost as a percentage of selling price
Product (Variable manufacturing cost/WSP Production) Mark up
Lipstick 16.8/21 80% (21/16.8)-1 25%
Nail polish 10.5/15 70% (15/10.5)-1 43%
Creams 2.8/5.6 50% (5.6/2.8)-1 100% 2010
Product
Lipstick 15.3/18 85% (18/15.3)-1 18%
Nail polish 9.3/11.6 80% (11.6/9.3)-1 25%
Creams 3.3/6.6 50% (6.6/3.3)+1 100%
*Note that these calculations are done for goods produced in the year in question Question 2
(cost of goods manufactured in 2008/ sales value for units produced in 2008) * ending inventory 2008
(16.8/21) * 11.5
9.748 million
Question 3
Luxor uses a FIFO inventory system, so the inventory that is sold first actually may come from prior years. Because of this, goods that are sold in each year need to be separated into goods produced in that year and goods produced in prior years. This is necessary to do because the percentage of the COGS that is variable is slightly different from year to year.
2009 Cost of Goods Sold:
6.3M from inventory on hand at beginning of year (produced in 2008 under FIFO)
2.3M from inventory produced in 2009
2010 Cost of Goods Sold:
8.2M from inventory on hand at beginning of year (produced in 2009 under FIFO)
0.3M from inventory produced in 2010
We now must determine the percentage of COGS that is variable for goods produced in 2008, 2009 and 2010:
2008
10.5M/(10.5M+0.7M) =93.75%
2009
9.8M/(9.8M+0.7M) = 93.333333%
2010
9.3M/(9.3M+0.6M) =93.939393%
We now apply these percentages to the COGS for 2009 and 2010 to determine the total variable cost for each year.
2009 Variable COGS = (6.3M * .9375) + (2.3M * .93333333) = $8.0529M
2010 Variable COGS = (8.2M * .93333333) + (0.3M * .9393939393) = $7.9352M
Assuming the variable manufacturing cost per unit was the same in 2009 and 2010, a higher variable cost of goods sold means that more units were sold. Since the variable COGS in 2009 is