MECH
Solution - Luxor Cosmetics

# Solution - Luxor Cosmetics - Calculate the variable...

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Calculate the variable manufacturing cost as a percentage of the selling price for each product line for 2008 and for 2010. What mark-up on variable manufacturing cost did the firm use to establish the selling prices for each of the three product lines in 2008? In 2010? YEAR 2008 Lipstick Nail Polish Creams Total Variable Manufacturing Cost 16.80 10.50 2.80 30.10 Sales 19.00 13.00 5.60 37.60 Percentage of selling price 88.42% 80.77% 50.00% 80.05% Mark up 11.58% 19.23% 50.00% 19.95% YEAR 2010 Lipstick Nail Polish Creams Total Variable Manufacturing Cost 15.30 9.30 3.30 27.90 Sales 16.50 11.20 6.40 34.10 Percentage of selling price 92.73% 83.04% 51.56% 81.82% Mark up 7.27% 16.96% 48.44% 18.18% Provide the calculation that converts the wholesale selling price (WSP) of the 12/31/2008 lipstick inventory shown as \$11.5 million in Schedule A of Exhibit 1 to the “cost” of \$9.7 million shown in Schedule B of Exhibit 1. Sale Value of the units produced (a) 21.00 Average production cost (b) 17.80 Percentage (a) x (b) = c 84.8% Inventory at 12/31/2008 (as per Schedule a) 11.50 "Cost" as shown in Schedule B 9.7 (11.5 x 84.8%) Assuming the variable manufacturing cost per unit stayed the same in 2009 and 2010, did the sales volume of nail polish (in terms of physical units) increase or decrease after the selling price was reduced in 2010? Explain. The sale volume of the physical units of the product is not dependent on the variable cost per units of the product. The variable cost would be incurred as per the number of units sold. So even in case, the variable cost per units is same; it’s not going to impact the physical unit sale of the nail polish.

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• Spring '10
• Ravikant

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