Luxor Cosmetics Executive Summary Essay

Question 1
2008Variable fabrication cost as a per centum of selling monetary value Product ( Variable fabrication cost/WSP Production ) Mark up Lipstick16. 8/2180 % ( 21/16. 8 ) -125 %
Nail polish10. 5/1570 % ( 15/10. 5 ) -143 %
Creams2. 8/5. 650 % ( 5. 6/2. 8 ) -1100 %

2010
Merchandise
Lipstick15. 3/1885 % ( 18/15. 3 ) -118 %
Nail polish9. 3/11. 680 % ( 11. 6/9. 3 ) -125 %
Creams3. 3/6. 650 % ( 6. 6/3. 3 ) +1100 %
*Note that these computations are done for goods produced in the twelvemonth in inquiry

Question 2
( cost of goods manufactured in 2008/ gross revenues value for units produced in 2008 ) * stoping stock list 2008 ( 16. 8/21 ) * 11. 5
9. 748million

Question 3
Luxor uses a FIFO stock list system. so the stock list that is sold foremost really may come from anterior old ages. Because of this. goods that are sold in each twelvemonth need to be separated into goods produced in that twelvemonth and goods produced in anterior old ages. This is necessary to make because the per centum of the COGS that is variable is somewhat different from twelvemonth to twelvemonth. 2009 Cost of Goods Sold:

6. 3M from stock list on manus at beginning of twelvemonth ( produced in 2008 under FIFO ) 2. 3M from stock list produced in 2009 2010 Cost of Goods Sold: 8. 2M from stock list on manus at beginning of twelvemonth ( produced in 2009 under FIFO ) 0. 3M from stock list produced in 2010 We now must find the per centum 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 per centums to the COGS for 2009 and 2010 to find the entire variable cost for each twelvemonth. 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 fabrication 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 higher in 2009 than it is in 2010. we can reason that the gross revenues volume of nail gloss decreased in 2010. Question 4

Let x = Break Even SalesF = Marketing & A ; Promotion + General Administration + Interest + Fixed Manufacturing Costs Let F = Total Fixed CostsF = 3. 4 + 1. 3 + 1. 8 + 1
Let V = Variable Costs Per Dollar of Sales7. 5

V is easy estimated by ( COGS-Fixed Costss ) /Sales
There is a little sum of fixed costs in COGS which means that it is non purely variable. but for our intents that makes a really little. immaterial difference and the inquiry merely requires an estimate.

V = ( 27. 7-1 ) /33. 5
0. 7970

ten = F + Vx
ten = 7. 5 + 0. 7970x
0. 2030x = 7. 5
ten = 36. 95
Break even gross revenues are about $ 36. 95 Million

Question 5

Let x = Break Even SalesF = Marketing & A ; Promotion + General Administration + Interest Let F = Total Fixed CostsF = 3. 3 + 1. 3 + 1. 1 + 1
Let V = COGS Per Dollar of Sales6. 7

Again. V is easy estimated by COGS/Sales
There is a little sum of fixed costs in COGS which means that it is non purely variable. but for our intents that makes a really little. immaterial difference and the inquiry merely requires an estimate.

V = ( 27. 7-1 ) /33. 5
0. 7970

ten = 33. 00
ten = F + Vx
ten = 6. 7 + 0. 7970x
0. 2030x = 6. 7

The new breakeven gross revenues for 2012 would be about 33. 00. given that 2012 is about similar to 2011. The house is more likely to breakeven than the old twelvemonth if they can maintain their gross revenues invariable and do non bring forth more than they can sell. Although with current tendencies of gross revenues over the past few old ages. it could be estimated that breakeven is non likely. With the current tendencies gross revenues could be estimated someplace around 32 million. in which instance the house would non breakeven in 2012. Question 6

Inventory Schedule – 2011 Budget
InventoryLipstickNail PolishCreams
Inventory ( 12/31 2010 Actual ) 15. 011. 41. 2
Planned Production * 19. 013. 08. 0
Goods Available for Sale34. 024. 49. 2
Budgeted Sales19. 013. 08. 0
Ending Inventory ( 12/31/2011 Budget ) 15. 011. 41. 2

* Planned production is to bring forth the same sum as the planned gross revenues. as per gross revenues director

Budgeted Cost of Goods Manufactured and Sold – 2011 Budget Variable Manufacturing Cost ( Budget ) 0. 90. 90. 6
17. 911. 74. 4
Fixed Manufacturing Cost ( Budget ) 0. 80. 60. 6
Cost of Goods Manufactured18. 712. 35. 0
Inventory ( 12/31/2010 Actual ) 13. 69. 60. 7
Goods Available for Sale32. 321. 95. 7
Inventory ( 12/31/2011 Budget ) 0. 90. 90. 6
14. 110. 40. 7
Budgeted Cost of Goods Sold 18. 211. 45. 1

MARGINS1. 01. 11. 6
0. 00. 10. 6

Variable Manufacturing Cost – First. happen the factor of Variable Manufacturing cost to planned production. less fixed fabrication cost

i. e. – 6. 8/ ( 8. 0- . 0. 8 ) = 0. 9 ( From Exhibit 2 )
Inventory – Find the factor of budgeted stoping stock list cost to budget stock list value i. e. – 6. 6/7. 0 = 0. 9 ( from Exhibit 2 )
Margins – ( Budgeted Sales/Budgeted Cost of Goods Sold ) – 1 i. e. – ( 19. 0/18. 2 ) – 1 = 1. 0 ( rounded )

Income Statement – 2011 BudgetCash Flow – 2011 Budget
Sales40. 0Cash Receipts From Customers40. 0
Cost of Goods Sold34. 7
Gross Margin5. 3Cash expenses
Marketing & A ; Promotion3. 6Variable Manufacturing34. 1
General Administration1. 3Fixed Manufacturing1. 0
Interest1. 8Marketing and Promotion3. 6
Pretax Income-1. 4General Administration1. 3
Interest1. 8
Pro-Forma Year-end Balance Sheet – 2011 BudgetTotal Disbursements41. 8 Assetss
Cash0. 0Beginning Cash5. 5
Assorted Current Assets3. 0+ Receipts40. 0
Inventory0. 0- Disbursements41. 8
Property & A ; Equipment11. 2- Loan Repayment10. 0
Goodwill9. 3Ending Cash ( Budgeted ) -6. 3
Entire Assets23. 5

Equities
Bank Loan16. 3
Assorted Current Liabilities4. 0
Common Stock12. 5
Retained Net incomes *9. 7
Entire Equities42. 5

* The Retained Net incomes are 9. 7 in this budget. which is adjusted from the old budget to account for an extra $ 0. 7 M loss

i. e. – 10. 4 – 0. 7 = 9. 7

Question 7
Through the execution of the suggested alterations in allotment. more of the fixed costs will be allocated to the pick merchandises because this merchandise line has the highest border ( as shown in the budgeted Cost of Goods Manufactured above ) . even though picks have the lowest entire gross revenues value. This will take to more of the fixed costs being incorporated into the Cost of Goods sold. and non into the stoping stock list Numberss. hence diminishing pre-tax income even further. Allocating the fixed costs in this mode would non impact the Cash Flow Statement in any manner. as the fixed costs would still take to a hard currency expense of an equal value regardless of which merchandise line they are allocated to.

Question 8
Luxor Cosmetics is a company that is stuck in a deceasing market because most of their clients that buy the lip rouge and nail gloss are adult females aged 45 to 75 who are in the lower income group. As that group gets older and older they have less demand for cosmetics so they buy less and less. The gross revenues will go on to drop and we will acquire less and less profitable. A manner to battle this is to shift ourselves in the market. We need to happen a manner to acquire ourselves into a better market that is more eager to purchase cosmetics. One manner of making this would be to get down aiming a new demographic of adult females who will purchase our merchandises. We could besides avoid the non-wholesale market because that manner we would acquire bigger orders and be able to budget better. However if we do this we will hold to see the possibility that we will hold to take down our monetary values and we will hold less net incomes in the terminal but we will hold more gross revenues. We should reinvest in the company that we purchased in the 1990s. We had a merchandise that we were traveling to take at adolescents but we abandoned the company due to the dotcom clang ; we should look at acquiring that company running. We should reinvest in the company that we abandoned because the market has recovered now.

We would acquire a trade name new client base and we could hold increased gross revenues. Plus we already own the company and it does no benefit to us merely sitting on the books non bring forthing any net incomes. It is an environmentally friendly merchandise and environmentally friendly merchandises are going more and more popular today. We could do the company seem really socially responsible and that would construct us a better repute and may do our gross revenues in our bing company addition well. The good will that is on the books today was acquired when we bought the environmentally friendly company in the 1990’s and yet we have non revalued it since so. The plus impairment trial should be done on good will to see how much of the good will exists any longer. It is possible that the plus of good will should non be on the books for Luxor at all any longer.

And it is merely doing our fiscal statements misdirecting for investors. If we adjust this properly we will hold a more realistic image of our company as it stands now. This manner we will non hold misdirecting fiscal statements any longer. There are a few ethical issues in the instance. The first is that there is force per unit area for the Numberss to be fudged. but as a professional comptroller that can non be done. We do non desire to do the statements misdirecting so that the bank is coaxed into giving us a loan that we can non afford. We can non manipulate the statements to run into our demands because person would calculate it out and we would non acquire off with it and overall it is extremely unethical. The other is following the policy that is set in topographic point for how to account for certain things. If our stock list is non useable anymore we should non be maintaining it on the books trusting it will do us look better. This is non appropriate and should be written off and adjusted for the fact that it is now disused.