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
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 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:
| 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. 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:
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 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: DIRECT MATERIALS Cost Units Cost Direct Materials Cost per Case Behavior per Case per Unit Cream base Variable 100 ozs. S0.02 $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 Cost Labor Rate Department Time per Case Direct Labor Cost per Case Behavior per Hour Mixing Variable 20 min. . $18.00 $6.00 Filling Variable 5 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Utilities Cost Behavior Total Cost Misced $600 Fixed 14,000 Facility lease Equipment depreciation Fixed 4,300 Supplies Fixed 660 $19,560 Part A-Break-Even Analysis 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 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 portion of the utility cost using the high-low method. Round the per unit cost to the nearest cent. At High Point At Low Point Variable cost per unit Total fixed cost II Total cost 2. Determine the contribution margin per case. Enter your answer to the nearest cent. Contribution margin per cases 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
