AA Genuine Spice Inc. began operations on January 1 of the current year. 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: Cost per Unit Cream base Natural oils Bottle (8-oz) Cost Behavior Variable Variable Variable DIRECT MATERIALS Units per Case 100 OZ. 30 oz. 12 bottles $0.02 0.30 0.50 Direct Materials Cost per Case $ 2.00 9.00 6.00 $17.00 Department Mixing Filling Cost Behavior Variable Variable DIRECT LABOR Time per Case 20 min. 5 25 min. Labor Rate per Hour $18.00 14.40 Direct Labor Cost per Case $6.00 1.20 $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed $ 600 Facility lease Fixed 14,000 Equipment depreciation Fixed 4,300 Part A-Break-Even Analysis The management of Genuine Spice Inc. wants 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: Case Production 500 800 January February March April May June 1,200 1.100 950 1,025 Utility Total Cost $600 660 740 720 690 705 Instructions 1. Determine the fixed and variable portion of the utility cost using the high-low method. 2. Determine the contribution margin per case. Answer 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: Estimated finished goods inventory, August 1 Desired finished goods inventory, August 31 Cases 300 175 Cost $12,000 7,000 Materials Inventory: Estimated materials inventory, August 1 Desired materials inventory, August 31 Cream Base (ox.) 250 1,000 Oils (oz.) 290 360 Bottles (bottles) 600 240 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, 5. Prepare the August production budget. 6. Prepare the August direct materials purchases budget. Answer 7. Prepare the August direct labor cost budget. Round the hours required for production to the nearest hour. 8. Prepare the August factory overhead cost 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: Cream base Natural oils Bottle (8-oz.) Actual Direct Materials Price per Unit $0.016 per oz. $0.32 per oz. $0.42 per bottle Actual Direct Materials Quantity per Case 102 oz. 31 oz 12.5 bottles Actual Direct Labor Rate $18.20 14.00 Actual Direct Labor Time per Case 19.50 min. 5.60 min. Mixing Filling Actual variable overhead Normal volume $305.00 1,600 cases The prices of the materials were different from 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. The prices of the materials were different from 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. 11. Mixing time variance, $(225) F Answer 12. Determine and interpret the factory overhead controllable variance. Answer 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 1,375 cases of production used in the budgets for parts (6) and (7)