Background Information

Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-ounce bottles of hand and body lotion calledEternal 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:

DIRECT MATERIALS
	Cost Behavior	Units per Case	Cost per Unit	Direct Materials Cost per Case
Cream base	Variable	100 ozs.	$0.02		$2.00
Natural oils	Variable	30 ozs.	0.30		9.00
Bottle (8-oz.)	Variable	12 bottles	0.50		6.00
					$17.00

DIRECT LABOR
Department	Cost Behavior	Time per Case	Labor Rate per Hour	Direct Labor Cost per Case
Mixing	Variable		20	min.	$18.00		$6.00
Filling	Variable		5		14.40		1.20
			25	min.			$7.20

FACTORY OVERHEAD
	Cost Behavior	Total Cost
Utilities	Mixed		$600
Facility lease	Fixed		14,000
Equipment depreciation	Fixed		4,300
Supplies	Fixed		660
			$19,560

Part ABreak-Even Analysis

The management of Genuine Spice Inc. wishes to determine the number of cases required tobreak evenper month. The utilities cost, which is part of factory overhead, is amixed cost. The following information was gathered from the first six months of operation regarding this cost:

Month	Case Production	Utility Total Cost
January	500	$600
February	800	660
March	1,200	740
April	1,100	720
May	950	690
June	1,025	705

Required:

1. Determine thefixedandvariableportions of the utility cost using thehigh-low method.Round the per unit cost to the nearest cent.

	At the High Point	At the Low Point
Variable cost per unit	$__________	$__________
Total fixed cost	__________	__________
Total cost	__________	__________

2. Determine thecontribution marginper case.Round your answer to the nearest cent.

Contribution margin per case $__________

3. Determine the fixed costs per month, including the utility fixed cost from part (1).

Utilities cost (from part 1)	$__________
Facility lease	__________
Equipment depreciation	__________
Supplies	__________
Total fixed costs	__________

4. Determine the break-even number of cases per month.

__________ cases

Part BAugust 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:

	Cases	Cost
Estimated finished goods inventory, August 1	300	$12,000
Desired finished goods inventory, August 31	175	7,000

Materials Inventory:

	Cream Base (ozs.)	Oils (ozs.)	Bottles (bottles)
Estimated materials inventory, August 1	250	290	600
Desired materials inventory, August 31	1,000	360	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.

Required:

5. the August production budget.

Genuine Spice Inc.
Production Budget
For the Month Ended August 31
Cases
Expected cases to be sold
Desired ending inventory
Total units available
Estimated beginning inventory
Total units to be produced

6. Prepare the August direct materials purchases budget.Enter the unit price to the nearest cent.

Genuine Spice Inc. Direct Materials Purchases Budget For the Month Ended August 31
	Cream Base (ozs.)	Natural Oils (ozs.)	Bottles (bottles)	Total
Units required for production
Desired ending inventory
Estimated beginning inventory
Direct materials to be purchased
Unit price	$	$	$
Total direct materials to be purchased	$	$	$	$

7. Prepare the August direct labor cost budget.For hours required, round to nearest whole hour. For hourly rate, enter to the nearest cent, if required.

Genuine Spice Inc. Direct Labor Cost Budget For the Month Ended August 31
	Mixing	Filing	Total
Hours required for production of:
Hand and body lotion
Hourly rate	$	$
Total direct labor cost	$	$	$

8. Prepare the August factory overhead cost budget. If an amount box does not require an entry, leave it blank.

Genuine Spice Inc. Factory Overhead Cost Budget For the Month Ended August 31
	Fixed	Variable	Total
Factory Overhead:
	$	$	$
Total	$	$	$

9. Prepare the August budgeted income statement, including selling expenses.

Genuine Spice Inc. Budgeted Income Statement For the Month Ended August 31
Sales	$
Finished goods inventory, August 1		$
Direct materials inventory, August 1	$
Direct materials purchases
Direct materials inventory, August 31
Cost of direct materials for production	$
Direct labor
Factory overhead
Finished goods inventory, August 31
Cost of goods sold
Gross Profit			$
Selling expenses
Operating income			$