Royal Essentials, Inc. began operations on January 1, 2008. 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:

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 1,200 actual cases produced during August, which was 50 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.
Specifically, the prices of the cream base and bottles were below the standard price, while the price of natural oils was above the standard price. 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
1. Determine and interpret the direct materials price and quantity variances for the three materials.
2. Determine and interpret the direct labor rate and time variances for the two departments.
3. Determine and interpret the factory overhead controllable variance.
4. Determine and interpret the factory overhead volume variance.
5. Why are the standard direct labor and direct materials costs in the calculations for parts A of (1) and (2) based on the actual 1,200-case production volume rather than the planned 1,150 cases of production used in the budgets for parts B (1) and(2)?

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DIRECT MATERIALS Direct Materials Cost per Case S1.08 6.00 4.80 $11.88 Cost Behavion Units per Case 72 ozS. 24 ozs 12 bottles Cost per Unit Cream base Natural oils Bottle (8-oz.) Variable Variable Variable S0.015 0.250 0.400 DIRECT LABOR Labor Rate per Hour 15.00 Direct Labor Cost Cost Behavior Time Department Mixing Filling per Case $4.20 0.84 5.04 per Case Variable Variable 16.80 min. 4.20 min. 21.00 min 12.00 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Facility lease Equipment depreciation Supplies Mixed Fixed Fixed Fixed S 230 9,694 3,600 600 14,124 Actual Direct Materials Price per Case Actual Direct Materials Quantity per Case 75 ozs. Cream base Natural oils Bottle (8-oz.) $1.00 (for 72 ozs.) 6.20 (for 24 ozs.) 25 ozs 4.50 (for 12 bottles) 12.2 bottles Actual Direct Labor Time per Case 16.50 min. 4.50 min. Actual Direct Labor Rate Mixing Filling $15.25 11.50 Actual variable overhead 125.00 Normal volume 1,500 cases