SAVON DE

MARSEILLE INC P&L

GROUP 4
124069 Vidyasagar Swaminathan
124109 Alexandra Braga
124041 Pranati Pandey
120859 Alexane Richard
124092 Kabir Rajput
124114 Junaid Ahmed
 KEY FINDINGS
• Sale of Brand A > Sale of Brand B

• Net Profit of Brand A = $3,43,55,658.76 and Net Profit of Brand B =

$1,82,27,031.40

• Even if A produces more profit, the Added value of Brand A < Added value
of Brand B

• For this particular case, the final statements would have been the same for
absorption and marginal cost since inventory is 0.
 What is SAVON DE MARSEILLE INC ?

Dating back from the XII century, Savon de Marseille is now a trendy way to reduce their plastic
consumption.
PRODUCT A PRODUCT B
Product A is a traditional soap Product B is a bundle that
made out of olive oil from the contains 5 different kinds of
city of Marseille soap for house cleaning
(laundry, dishes, floor etc…)
A B S O R P T I O N C O S T I N G F O R S AV O N
DE MARSEILLE INC’S CASE

• All of the units that were intended to be produced were indeed produced

• There is no inventory so no need to value it

• There are different kinds of overheads that are needed to be sorted through

• The absorption cost method is also useful for financial and tax reporting, so

our work can be used in different issues

S T E P 1 : C O L L E C T I O N O F G I V E N D AT A
S T E P 1 . 1 C O L L E C T I N G D AT A A N D C A L C U L AT E T H E
VA R I A B L E C O S T S

S O U R C E : O W N C A L C U L AT I O N S
S T E P 1 . 2 C A L C U L AT I O N O F T H E P E R C E N T A G E S
R E L AT I V E T O C O S T C E N T R E

S O U R C E : O W N C A L C U L AT I O N S
S T E P 2 : C A L C U L AT I O N O F F I X E D P R O D U C T I O N
OVERHEAD COSTS
STEP 2.1 PRODUCTION OVERHEADS TO COST
CENTERS
Creating cost centers for Stores, Canteen, Offices, Communication, and Production. This allows us to determine the
fixed cost per cost center.
*Costs of rent, heating, electricity, insurance and finance, and accounting are deducted taking into consideration the square
meters of each department
*Costs with the employees of the plant's top management are deducted taking into consideration the square meters of the
production departments

S O U R C E : O W N C A L C U L AT I O N S
S T E P 2 . 2 R E A P P O RT I O N M E N T O F S E RV I C E C O S T
CENTERS OVERHEADS

We will reapportion the fixed production overhead costs obtained to the service and production per cost centres
into just the production cost centers.

S O U R C E : O W N C A L C U L AT I O N S
S T E P 2 . 2 R E A P P O RT I O N M E N T O F S E RV I C E C O S T
CENTERS OVERHEADS

S O U R C E : O W N C A L C U L AT I O N S
STEP 2.3 ABSORPTION OF OVERHEADS INTO
PRODUCTION (COST UNITS)
In this step, we will discover the absorption rate of overheads per cost unit. But firstly, we will discover how
to apportion the budgeted value of fixed production overhead costs.

S O U R C E : O W N C A L C U L AT I O N S
WHY RECIPROCAL
METHOD?
STEP 2.3 ABSORPTION OF OVERHEADS INTO
PRODUCTION (COST UNITS)

S O U R C E : O W N C A L C U L AT I O N S
S O U R C E : O W N C A L C U L AT I O N S
S T E P 3 : C A L C U L AT I O N O F N O N P R O D U C T I O N
OVERHEAD

S O U R C E : O W N C A L C U L AT I O N S

S O U R C E : O W N C A L C U L AT I O N S
 S O U R C E : O W N C A L C U L AT I O N S
STEP 4: COST CARD
S T E P 5 : F I N A L C O M P U T AT I O N

S O U R C E : O W N C A L C U L AT I O N S
 Our Conclusions
• For both products A and B, there is an over-absorption because the value of overheads absorbed is lower than
the value of the actual overheads spent.
• Brand B represents only 28% of sales but 34% of added value. Therefore our advice would be to increase the
effort on this product even if it is costly.
• The budgeted production of the bundle soap is higher than the actual. Therefore our advice is to create a better
estimation system to avoid extra expends in both material and wages.
 THANK
YOU!
ANY
QUESTIONS?