kit Sniff Limited manufactures

Sniff Limited manufactures and sells its standard perfume by blending a secret formula of
aromatic oils with diluted alcohol. The oils are produced by another company following a
lengthy process and are very expensive. The standard perfume is highly branded and
successfully sold at a price of $39.98 per 100 millilitres (ml).
Sniff Limited is considering processing some of the perfume further by adding a hormone to
appeal to members of the opposite sex. The hormone to be added will be different for the
male and female perfumes. Adding hormones to perfumes is not universally accepted as a
good idea as some people have health concerns. On the other hand, market research
carried out suggests that a premium could be charged for perfume that can ‘promise’ the
attraction of a suitor. The market research has cost $3,000.
Data has been prepared for the costs and revenues expected for the following month
(a test month) assuming that a part of the company’s output will be further processed by
adding the hormones.
The output selected for further processing is 1,000 litres, about a tenth of the company’s
normal monthly output. Of this, 99% is made up of diluted alcohol which costs $20 per litre.
The rest is a blend of aromatic oils costing $18,000 per litre. The labour required to produce
1,000 litres of the basic perfume before any further processing is 2,000 hours at a cost of
$15 per hour.
Of the output selected for further processing, 200 litres (20%) will be for male customers
and 2 litres of hormone costing $7,750 per litre will then be added. The remaining 800 litres
(80%) will be for female customers and 8 litres of hormone will be added, costing $12,000
per litre. In both cases the adding of the hormone adds to the overall volume of the product
as there is no resulting processing loss.
Sniff Limited has sufficient existing machinery to carry out the test processing.
The new processes will be supervised by one of the more experienced supervisors currently
employed by Sniff Limited. His current annual salary is $35,000 and it is expected that he
will spend 10% of his time working on the hormone adding process during the test month.
This will be split evenly between the male and female versions of the product.
Extra labour will be required to further process the perfume, with an extra 500 hours for
the male version and 700 extra hours for the female version of the hormone?added
product. Labour is currently fully employed, making the standard product. New labour with
the required skills will not be available at short notice.
Sniff Limited allocates fixed overhead at the rate of $25 per labour hour to all products for
the purposes of reporting profits.
The sales prices that could be achieved as a one?off monthly promotion are:
? Male version: $75.00 per 100 ml
? Female version: $59.50 per 100 ml.
Required:
(a) Outline the financial and other factors that Sniff Limited should consider when
making a further processing decision. ?
Note: no calculations are required. (5 marks)
(b) Evaluate whether Sniff Limited should experiment with the hormone adding
process using the data provided. Provide a separate assessment and conclusion for
the male and the female versions of the product. ? (15 marks)
(Total: 20 marks)

sir, in the above (b)question whether the extra hours are for adding hormone if that is the case then how the normal output(ie 1000) produce as there is no sufficient hours