Comprehensive Problem Part A: The following is the comprehensive problem in the textbook which encompasses all of the elements learned in previous chapters. Refer to the objectives for each chapter covered as a review of concepts. Note: You must complete part A before completing parts B and C. Essence of Persia, Inc., began operations on January 1, 2010. 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 $80 per case. There is a selling commission of $16 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

Part A - Break-Even Analysis The management of Essence of Persia, 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: Instructions: 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 $__________ $__________ Total Cost $__________ $__________ 2. Determine the contribution margin per case. Enter your answer to the nearest cent. For example, 89.458 would be entered as 89.46 Contribution margin per case: $_________ 3. Determine the fixed costs per month, including the utility fixed cost from part (1). Enter your answers to the nearest whole number. For example, 89.45 would be entered as 89 and 89.56 would be entered as 90. Utilities Cost (from part 1) $ __________ Facility Lease $ __________ Equipment Depreciation $ __________ Supplies $ __________ Total Fixed Costs $ __________ 4. Determine the break-even number of cases per month. Round your answer to the nearest whole number. __________ Cases Comprehensive Problem 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. Essence of Persia, Inc., began operations on January 1, 2010. 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 $80 per case. There is a selling commission of $16 per case. The January direct materials, direct labor, and factory overhead costs are as follows: Part B- August Budgets During July of the current year, the management of Essence of Persia, Inc., asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,400 cases at $80 per case for August. Inventory planning information is provided as follows:

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. 5. Prepare the August production budget. Enter all amounts as positive numbers. ESSENCE OF PERSIA, INC. Production Budget For the Month Ended August 31, 2010 Cases Expected cases to be sold __________ Plus desired ending inventory __________ Total __________

Less estimated beginning inventory __________ Total units to be produced __________ 6. Prepare the August direct materials purchases budget. Enter the unit price as dollars and cents but carry out to three decimal places. For example, enter .2357 as 0.236 and enter 3.61 as 3.610. Enter all amounts as positive numbers. ESSENCE OF PERSIA, INC. Direct Materials Purchases Budget For the Month Ended August 31, 2010 Natural Cream Base Oils Bottles Total (ozs.) (ozs.) (bottles) Units required for production Plus desired ending inventory Less estimated beginning inventory Direct materials to be purchased Unit price X X X Total direct materials to be purchased

7. Prepare the August direct labor budget. For hours required, round to nearest whole hour. For hourly rate, enter the amount as rounded to nearest whole dollar. ESSENCE OF PERSIA, INC. Direct Labor Budget For the Month Ended August 31, 2010 Mixing Filling Total Hours required for production: Hand and body lotion Hourly rate X X Total direct labor cost

8. Prepare the August factory overhead budget. If an amount box does not require an entry, leave it blank. ESSENCE OF PERSIA, INC. Factory Overhead Budget For the Month Ended August 31, 2010 Factory overhead Fixed Variable Total Utilities Facility Lease Equipment Depreciation Supplies Total 9. On your own paper, a spreadsheet or working papers, prepare the August budgeted income statement, including selling expenses. Provide the following amounts: Sales: $ Cost of direct materials for production: $ Cost of goods sold: $ Gross profit: $ Selling expenses: $ Income before income tax: $

Comprehensive Problem Part C: Note: This section is a continuation from Parts A and B of the comprehensive problem. Be sure you have completed Parts A and B before attempting Part C. You may have to refer back to data presented in Parts A and B as well as use answers from those parts when completing this section. Essence of Persia, Inc., began operations on January 1, 2010. 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 $80 per case. There is a selling commission of $16 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

Part C- August 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 200 more cases than planned at the beginning of the month. Actual data for August were as follows: The prices of the materials were different than 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. 10. Determine and interpret the direct materials price and quantity variances for the three materials. Enter the costs in dollars and cents (unless otherwise instructed). Enter all amounts as positive numbers. Direct Materials Price Variance: Cream Base Natural Oils Bottles Actual price $ $ $ Standard price Difference $ $ $ Actual quantity (cases) X X X Direct materials price variance $ $ $ Indicate if favorable or unfavorable Enter the standard price to three decimal places. For example, $1.3458 would be entered as 1.346. Direct Materials Quantity Variance: Cream Base Natural Oils Bottles Actual quantity Standard quantity Difference Standard price Direct materials quantity variance Indicate if favorable or unfavorable Interpret your results. The input in the box below will not be graded, but may be reviewed and considered by your instructor. 11. Determine and interpret the direct labor rate and time variances for the two departments. Enter the costs in dollars and cents. Enter all amounts as positive numbers. Direct Labor Rate Variance: Mixing Department Filling Department Actual rate Standard rate Difference Actual time (hours) Direct labor rate variance Indicate if favorable or unfavorable

Direct Labor Time Variance: Mixing Department Filling Department Actual time (hours) Standard time (hours) Difference Standard rate Direct labor time variance Indicate if favorable or unfavorable

Interpret your results. 12. Determine and interpret the factory overhead controllable variance. Enter all amounts as positive numbers. Actual variable overhead $ Variable overhead at standard cost Factory overhead controllable variance $ Indicate if favorable or unfavorable SelectFavorableUnfavorableItem 66 Interpret your results. 13. Determine and interpret the factory overhead volume variance. When determining the fixed factory overhead rate, round your answer to two decimal places. Enter all amounts as positive numbers. Normal volume (cases) Actual volume (cases) Difference Fixed factory overhead rate $ Factory overhead volume variance $ Indicate if favorable or unfavorable SelectFavorableUnfavorableItem 73 Interpret your results. 14. Why are the standard direct labor and direct materials costs in the calculations for parts (10) and (11) based on the actual 1,500-case production volume rather than the planned 1,300 cases of production used in the budgets for parts (6) and (7)?