Comprehensive Problem 5 Part A:

Note: You must complete part A before completing parts B and C.

Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-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:

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 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:

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 the fixed and variable portions of the utility cost using the high-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 the contribution margin per case. Enter 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