Essence of Persia, Inc., began operations on January 1, 2010. The company produces a hand and body lotion in an eight-ounce bottle called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $80 per case. There is a selling commission of $16 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

Part A'Break-Even Analysis
The management of Essence of Persia, Inc., wishes to determine the number of cases required to break even per month. The utilities cost, which is part of factory overhead, is a mixed cost. The following information was gathered from the first six months of operation regarding this cost:

Instructions
1. Determine the fixed and variable portion of the utility cost using the high-low method.
2. Determine the contribution margin per case.
3. Determine the fixed costs per month, including the utility fixed cost from part (1).
4. Determine the break-even number of cases per month.
Part B'August Budgets
During July of the current year, the management of Essence of Persia, Inc., asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,400 cases at $80 per case for August. Inventory planning information is provided as follows:
Finished Goods Inventory:

Materials Inventory:

There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January.
Instructions
5. Prepare the August production budget.
6. Prepare the August direct materials purchases budget.
7. Prepare the August direct labor budget.
8. Prepare the August factory overhead budget.
9. Prepare the August budgeted income statement, including selling expenses.
Part C'August Variance Analysis
During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,500 actual cases produced during August, which was 200 more cases than planned at the beginning of the month. Actual data for August were as follows:

The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.
Instructions
10. Determine and interpret the direct materials price and quantity variances for the three materials.
11. Determine and interpret the direct labor rate and time variances for the two departments.
12. Determine and interpret the factory overhead controllable variance.
13. Determine and interpret the factory overhead volume variance.
14. Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,300 cases of production used in the budgets for parts (6) and(7)?

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DIRECT MATERIALS Çost Behavior Units Cost Direct Materials per Case per Unit Cost per Case $ 1.08 72 ozs. $0.015 Cream base Variable 24 ozs. Natural oils Variable 0.250 6.00 Bottle (8-oz.) Variable 12 bottles 0.400 4.80 $11.88 DIRECT LABOR Cost Behavior Time per Case Labor Rate per Hour Direct Labor Cost per Case Department Mixing Filling Variable 16.90 min. $15.00 $4.20 12.00 Variable 4.20 0.84 $5.04 21.00 min. FACTORY OVERHEAD Cost Behavior Total Cost $ 230 14,392 3,600 Utilities Mixed Facility lease Equipment depreciation Supplies Fixed Fixed Fixed 600 $18,822