Comprehensive Problem 5 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 Part ABreak 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 Utility Total Cost January 500 $600 February 800 660 March 1,200 740 April 1,100 720 May 950 690 June 1,025 705 Instructions Determine the fixed and variable portion of the utility cost using the high low method Determine the contribution margin per case Answer Check figure $55 60 Determine the fixed costs per month, including the utility fixed cost from part (1) Determine the break even number of cases per month 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 (oz ) Oils (oz ) 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 Instructions Prepare the August production budget Prepare the August direct materials purchases budget Answer Check figure Bottles purchased, $8,070 Prepare the August direct labor cost budget Round the hours required for production to the nearest hour Prepare the August factory overhead cost budget Prepare the August budgeted income statement through income from operations Include the details of the computation of cost of goods sold Use Selling Expenses as the only non production expense account Part CAugust 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 Actual Direct Materials Price per Unit Actual Direct Materials Quantity per Case Cream base $0 016 per oz 102 oz Natural oils $0 32 per oz 31 oz Bottle (8 oz ) $0 42 per bottle 12 5 bottles Actual Direct Labor Rate Actual Direct Labor Time per Case Mixing $18 20 19 50 min Filling 14 00 5 60 min Actual variable overhead $305 00 Normal volume 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 Instructions Determine and interpret the direct materials price and quantity variances for the three materials Determine and interpret the direct labor rate and time variances for the two departments Round hours to one decimal place Answer Check figure Mixing time variance, $(225) F Determine and interpret the factory overhead controllable variance Answer Check figure $5 U Determine and interpret the factory overhead volume variance Why are the standard direct labor and direct materials costs in the computations 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)

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Comprehensive Problem 5 Genuine Spice Inc. began operations on January 1 of the current year. The company produces eight-ounce bottles of hand and body lotion

Comprehensive Problem 5

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:

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

Instructions

Determine the fixed and variable portion of the utility cost using the high-low method.
Determine the contribution margin per case.
Answer
Check figure: $55.60
Determine the fixed costs per month, including the utility fixed cost from part (1).
Determine the break-even number of cases per month.

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 (oz.)	Oils (oz.)	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.

Instructions

Prepare the August production budget.
Prepare the August direct materials purchases budget.
Answer
Check figure: Bottles purchased, $8,070
Prepare the August direct labor cost budget. Round the hours required for production to the nearest hour.
Prepare the August factory overhead cost budget.
Prepare the August budgeted income statement through income from operations. Include the details of the computation of cost of goods sold. Use Selling Expenses as the only non-production expense account.

Part CAugust 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:

	Actual Direct Materials Price per Unit		Actual Direct Materials Quantity per Case
Cream base	$0.016	per oz.	102	oz.
Natural oils	$0.32	per oz.	31	oz.
Bottle (8-oz.)	$0.42	per bottle	12.5	bottles

	Actual Direct Labor Rate		Actual Direct Labor Time per Case
Mixing	$18.20		19.50	min.
Filling	14.00		5.60	min.
Actual variable overhead	$305.00
Normal volume	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.

Instructions

Determine and interpret the direct materials price and quantity variances for the three materials.
Determine and interpret the direct labor rate and time variances for the two departments. Round hours to one decimal place.
Answer
Check figure: Mixing time variance, $(225) F
Determine and interpret the factory overhead controllable variance.
Answer
Check figure: $5 U
Determine and interpret the factory overhead volume variance.
Why are the standard direct labor and direct materials costs in the computations 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)?