Luxor Cosmetics Executive Summary Essay

heading 12008Variable manufacturing cost as a percentage of selling price Product(Variable manufacturing cost/WSP Production)Mark up Lipstick16.8/2180%(21/16.8)-125% discharge polish10.5/1570%(15/10.5)-143%Creams2.8/5.650%(5.6/2.8)-1100%2010ProductLipstick15.3/1885%(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 calculations argon done for goods bring upd in the year in questionQuestion 2(cost of goods manufactured in 2008/ sales take to be for units produced in 2008) * ending inventory 2008 (16.8/21) * 11.59.748millionQuestion 3Luxor uses a FIFO inventory system, so the inventory that is sold first actually whitethorn germ 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 apostrophize of Goods Sold6.3M from inventory on hand at beginning of year (produced in 2008 chthonian FIFO) 2.3M from inventory produced in 20092010 Cost of Goods Sold8.2M from inventory on hand at beginning of year (produced in 2009 under FIFO) 0.3M from inventory produced in 2010We straight off must determine the percentage of COGS that is variable for goods produced in 2008, 2009 and 2010200810.5M/(10.5M+0.7M) =93.75%20099.8M/(9.8M+0.7M) = 93.333333%20109.3M/(9.3M+0.6M) =93.939393%We now apply these percentages to the COGS for 2009 and 2010 to determine the sum up 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 presumptuous the variable manufacturing cost per unit was the same in 2009 and 2010, a high variable cost of goods sold elbow room that more than units were sold. Since the variable COGS in 2009 is higher in 2009 than it is in 2010, we can conclude that the sales volume of na il polish decreased in 2010. Question 4Let x = transformation Even gross salesF = Marketing & Promotion + General garbage disposal + Interest + Fixed Manufacturing Costs Let F = Total Fixed CostsF = 3.4 + 1.3 + 1.8 + 1Let V = Variable Costs Per Dollar of Sales7.5V is easily estimated by (COGS-Fixed Costs) /SalesThere is a small amount of strict costs in COGS which means that it is not strictly variable, but for our purposes that makes a very small, immaterial difference and the question wholly requires an approximation.V = (27.7-1)/33.50.7970x = F + Vxx = 7.5 + 0.7970x0.2030x = 7.5x = 36.95 sort out correct sales are approximately $36.95 MillionQuestion 5Let x = Break Even SalesF = Marketing & Promotion + General Administration + Interest Let F = Total Fixed CostsF = 3.3 + 1.3 + 1.1 + 1Let V = COGS Per Dollar of Sales6.7Again, V is easily estimated by COGS/SalesThere is a small amount of fixed costs in COGS which means that it is not strictly variable, but for our purposes tha t makes a very small, immaterial difference and the question only requires an approximation.V = (27.7-1)/33.50.7970x = 33.00x = F + Vxx = 6.7 + 0.7970x0.2030x = 6.7The new breakeven sales for 2012 would be approximately 33.00, given that 2012 is approximately similar to 2011. The firm is more probable to breakeven than the previous year if they can keep their sales constant and do not produce more than they can sell. Although with current trends of sales over the past(a) few years, it could be estimated that breakeven is not likely. With the current trends sales could be estimated somewhere around 32 million, in which case the firm would not breakeven in 2012. Question 6Inventory Schedule 2011 BudgetInventoryLipstickNail PolishCreamsInventory (12/31 2010 Actual)15.011.41.2Planned Production * 19.013.08.0Goods Available for Sale34.024.49.2Budgeted Sales19.013.08.0Ending Inventory (12/31/2011 Budget)15.011.41.2* Planned production is to produce the same amount as the mean sales, a s per sales managerBudgeted Cost of Goods Manufactured and Sold 2011 Budget Variable Manufacturing Cost (Budget)0.90.90.617.911.74.4Fixed Manufacturing Cost (Budget)0.80.60.6Cost of Goods Manufactured18.712.35.0Inventory (12/31/2010 Actual) 13.69.60.7Goods Available for Sale32.321.95.7Inventory (12/31/2011 Budget)0.90.90.614.110.40.7Budgeted Cost of Goods Sold 18.211.45.1MARGINS1.01.11.60.00.10.6Variable Manufacturing Cost First, find the factor of Variable Manufacturing cost to planned production, less fixed manufacturing costi.e. 6.8/(8.0-.0.8) = 0.9 (From Exhibit 2)Inventory Find the factor of budgeted ending inventory cost to budget inventory 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 BudgetSales40.0Cash Receipts From Customers40.0Cost of Goods Sold34.7Gross Margin5.3Cash disbursementsMarketing & Promotion3.6Variable Manufacturing34.1Genera l Administration1.3Fixed Manufacturing1.0Interest1.8Marketing and Promotion3.6Pretax Income-1.4General Administration1.3Interest1.8Pro-Forma Year-End Balance Sheet 2011 BudgetTotal Disbursements41.8 AssetsCash0.0Beginning Cash5.5 multifaceted Current Assets3.0+ Receipts40.0Inventory0.0- Disbursements41.8Property & Equipment11.2- Loan Repayment10.0Good exit9.3Ending Cash (Budgeted)-6.3Total Assets23.5EquitiesBank Loan16.3Miscellaneous Current Liabilities4.0Common Stock12.5Retained Earnings *9.7Total Equities42.5* The Retained Earnings are 9.7 in this budget, which is familiarized from the previous budget to account for an additional $0.7 M lossi.e. 10.4 0.7 = 9.7Question 7Through the implementation of the suggested changes in allocation, more of the fixed costs will be allocated to the cream products because this product line has the highest margin (as shown in the budgeted Cost of Goods Manufactured above), even though creams be possessed of the lowest total sales value. This w ill lead to more of the fixed costs being incorporated into the Cost of Goods sold, and not into the ending inventory numbers, therefore decreasing pre-tax income even further. Allocating the fixed costs in this manner would not affect the Cash Flow Statement in any way, as the fixed costs would sedate lead to a cash disbursement of an equal value regardless of which product line they are allocated to.Question 8Luxor Cosmetics is a confederation that is stuck in a dying market because most of their customers that buy the lipstick and nail polish are women aged 45 to 75 who are in the press down income group. As that group gets older and older they have less need for cosmetics so they buy less and less. The sales will continue to drop and we will get less and less profitable. A way to combat this is to reposition ourselves in the market. We need to find a way to get ourselves into a die market that is more eager to buy cosmetics. One way of doing this would be to start targeting a new demographic of women who will buy our products. We could also ward off the non-wholesale market because that way we would get bigger orders and be able to budget better. However if we do this we will have to consider the possibility that we will have to lower our prices and we will have less profits in the end but we will have more sales. We should reinvest in the companion that we purchased in the 1990s. We had a product that we were going to aim at teenagers but we abandoned the company due to the dotcom crash we should look at getting that company running. We should reinvest in the company that we abandoned because the market has recovered now.We would get a brand new customer base and we could have increased sales. Plus we already own the company and it does no benefit to us just sitting on the books not generating any profits. It is an environmentally friendly product and environmentally friendly products are worthy more and more popular today. We could make the compan y seem very socially responsible and that would build us a better reputation and may make our sales in our existing company increase substantially. The goodwill that is on the books today was acquired when we bought the environmentally friendly company in the 1990s and besides we have not revalued it since then. The asset impairment test should be done on goodwill to see how much of the goodwill exists anymore. It is possible that the asset of goodwill should not exist on the books for Luxor at all anymore.And it is just making our financial statements misleading for investors. If we adjust this properly we will have a more realistic picture of our company as it stands now. This way we will not have misleading financial statements anymore. There are a few honorable issues in the case. The first is that there is pressure for the numbers to be fudged, but as aprofessional accountant that cannot be done. We do not hope to make the statements misleading so that the bank is coaxed int o giving us a loan that we cannot afford. We cannot fudge the statements to meet our needs because someone would figure it out and we would not get away with it and overall it is highly unethical. The other is following the policy that is set in place for how to account for certain things. If our inventory is not operational anymore we should not be keeping it on the books hoping it will make us look better. This is not appropriate and should be written off and adjusted for the fact that it is now obsolete.