Genuine Spice Inc. began operations on January 1, 2016. The company produces eight- ounce bottles of hand and body lotion called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $100 per case. There is a selling commission of $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

Part A-Break-Even Analysis
The management of Genuine Spice 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 Genuine Spice Inc. asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,500 cases at $100 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. Round the hours required for production to the nearest hour.
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 250 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. Round hours to the nearest hour.
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 1,250 cases of production used in the budgets for parts (6) and (7)?

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DIRECT MATERIALS Cream base Natural oils Bottle (8-oz) Cost Behavior Variable Variable Variable Units per Case 100 ozs. 30 ozS 12 bottles Cost per Unit $0.02 0.30 0.50 Direct Materials Cost per Case 2.00 9.00 6.00 $17.00 DIRECT LABOR Department Mixing Filling Cost Behavior Variable Variable Time per Case 20 min. Labor Rate per Hour $18.00 14.40 Direct Labor Cost per Case $6.00 1.20 $7.20 25 min. FACTORY OVERHEAD Cost Behavior Mixed Fixed Fixed Fixed Total Cost Utilities Facility lease Equipment depreciation Supplies 600 14,000 4,300 660 $19,560 January February tarh April May June Case Production 500 800 1,200 1,100 950 1,025 Utility Total Cost $600 660 740 720 690 705 Cases 300 175 Cost Estimated finished goods inventory, August 1, 2016 Desired finished goods inventory, August 31, 2016 12,000 7,000 Cream Base (ozs.) 250 1,000 oills (ozs.) 290 360 Bottles (bottles) 600 240 Estimated materials inventory, August 1, 2016 Desired materials inventory, August 31, 2016 Actual Direct Materials Cream base Natural oils Bottle (8-oz) Price per Unit 0.016 per oz. $0.32 per oz. $0.42 per bottle Actual Direct Materials Quantity per Case 102 ozs. 31 ozS 2.5 bottles Actual Direct Labor Time per Case 19.50 min 5.60 min. Actual Direct Labor Rate Mixing Filling 18.20 14.00 Actual variable overhead Normal volume $305.00 1,600 cases