Fantastic Lips, Inc

question 59

Essay

Fantastic Lips, Inc., specializes in manufacturing lipstick. Racy Red, one of more than 75 shades produced by the company, is made from castor oil, beeswax, aloe vera, and a base compound. For the next 12 months, the company's purchasing agent believes that the cost of ingredients will be as follows:
The direct labor time standard is 4 hours per case at a standard direct labor rate of $11.00 per hour. The standard overhead rates are $15.00 per direct labor hour for the standard variable overhead rate and $13.00 per direct labor hour for the standard fixed overhead rate.
a. Using these production standards, compute the standard unit cost of direct materials per case of Racy Red if it takes 0.2 gallon of castor oil, 0.5 pound of beeswax, 0.3 gallon of aloe vera, and 1 gallon of base compound to produce one case.
b. Using the standard unit cost of direct materials per case determined in (a) and the production standards given for direct labor and overhead, compute the standard unit cost of one case of Racy Red lipstick.

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Definitions:

Managers

Individuals responsible for directing and overseeing the operations and strategic direction of a company or organization.

Practice

The repeated exercise or application of an activity or skill to acquire or maintain proficiency in it.

NPV

Net Present Value, a calculation used to determine the current value of a series of future cash flows.

IRR

Stands for Internal Rate of Return, a financial metric used to estimate the profitability of potential investments by calculating the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.