Comprehensive Problem 5 Part B: Note: This section is a continuation from Part A of the comprehensive problem. Be sure you have completed Part A before attempting Part B. You may have to refer back to data presented in Part A and use answers from Part A when completing this section. Genuine Spice Inc. began operations on January 1, 2016. The company produces a hand and body lotion in an eight-ounce bottle 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 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: Case Cost Estimated finished goods inventory, August 1, 2016 300 $12,000 Desired finished goods inventory, August 31, 2016 175 7,000 Materials Inventory: Cream Base (ozs.) Oils (ozs.) Bottles (bottles) Estimated materials inventory, August 1, 2016 250 290 600 Desired materials inventory, August 31, 2016 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. Prepare the August production budget. Enter all amounts as positive numbers. Genuine Spice Inc. Production Budget For the Month Ended August 31, 2016 Cases Expected cases to be sold 1,500 Plus desired ending inventory 175 Total 1,675 Less estimated beginning inventory 300 Total units to be produced 1,375 6. Prepare the August direct materials purchases budget. Enter the unit price to the nearest cent. Enter all amounts as positive numbers. Genuine Spice Inc. Direct Materials Purchases Budget For the Month Ended August 31, 2016 Cream Base (ozs.) Natural Oils (ozs.) Bottles (bottles) Total Units required for production 137,500 41,250 16,500 Plus desired ending inventory 1,000 360 240 Less estimated beginning inventory 250 290 600 Direct materials to be purchased 138,250 41,320 16,140 Unit price $ 0.02 $ 0.3 $ 0.5 Total direct materials to be purchased $ 2,765 $ 12,396 $ 8,070 $ 23,231 7. Prepare the August direct labor budget. For hours required, round to nearest whole hour. For hourly rate, enter to the nearest cent, if required. Genuine Spice Inc. Direct Labor Budget For the Month Ended August 31, 2016 Hours required for production of: Mixing Filling Total Hand and body lotion 458.3333333 114.5833333 Hourly rate $ 18 $ 14.4 Total direct labor cost $ 8,250 $ 1,650 $ 9,900 8. Prepare the August factory overhead budget. If an amount box does not require an entry, leave it blank. Genuine Spice Inc. Factory Overhead Budget For the Month Ended August 31, 2016 Factory overhead: Fixed Variable Total Utilities $ 500 $ 275 $ 775 Facility lease 14,000 14,000 Equipment depreciation 4,300 4,300 Supplies 600 660 Total $ 19,460 $ 275 $ 19,735 9. Prepare the August budgeted income statement, including selling expenses. Enter all amounts as positive numbers. Genuine Spice Inc. Budgeted Income Statement For the Month Ended August 31, 2016 Sales $ 150,000 Finished goods inventory, August 1 $ 1,200 Direct materials inventory, August 1 $ 392 Direct materials purchases 23,231 Less direct materials inventory, August 31 248 Cost of direct materials for production $ 23,375 Direct labor 9,900 Factory overhead 19,735 53,010 Less finished goods inventory, August 31 7,000 Cost of goods sold 58,010 Gross profit $ 79,490 Selling expenses 27,500 Income before income tax $ 51,990