Genuine Spice Inc. began operations on January 1, 2016. The company produc eight-ounce bottles of hand and body lotion called Elernal 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 follow Cream base Natural oils Bottle (8-oz.) DIRECT MATERIALS Cost Units Behavior per Case Variable 100 ozs. Variable 30 ozs. Variable 12 bottles Cost per Unit $0.02 0.30 Direct Materials Cost per Case $ 2.00 9.00 6.00 $17.00 0.50 Department Mixing Filling Cost Behavior Variable Variable DIRECT LABOR Time per Case 20 min. Labor Rate per Hour $18.00 14.40 Direct Labor Cost per Case $6.00 1.20 $7.20 25 min. 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 A-Break-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 re. garding this cost: 2016 January February March April May June Case Production 500 800 1.200 1,100 950 1,025 Utility Total Cost 5600 660 740 720 690 705 Instructions 1. Determine the fixed and variable portion of the utility cost using the high-low method. 2. Determine the contribution margin per case. 3. Determine the fixed costs per month, including the utility fixed cost from part (1) 4. Determine the break-even number of cases per month Part B-August 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, 2016 300 $12,000 Desired finished goods inventory, August 31, 2016 7,000 Materials Inventory: 175 240 Cream Base Oils Bottles TOE.) (oz.) (bottles) Estimated materials inventory, August 1, 2016 250 290 600 Desired materials inventory, August 31, 2016 1,000 360 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 5. Prepare the August production budget. 6. Prepare the August direct materials purchases budget. 7. Prepare the August direct labor budget. Round the hours required for production to the nearest hour. 8. Prepare the August factory overhead budget. 9. Prepare the August budgeted income statement, including selling expenses. Part (-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 250 more cases than planned at the beginning of the month. Actual data for August were as follows: Cream base Natural oils Bottle (8-oz.) Actual Direct Materials Price per Unit $0.016 per oz. $0.32 per oz. $0.42 per bottle Actual Direct Materials Quantity per Case 102 Ozs. 31 oz. 12.5 bottles Mixing Filling Actual Direct Labor Rate $18.20 14.00 Actual Direct Labor Time per Case 19.50 min. 5.60 min. Actual variable overhead Normal volume $305.00 1,600 cases 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 Mix ing 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 10. Determine and interpret the direct materials price and quantity variances for the three materials. 11. Determine and interpret the direct labor rate and time variances for the tu departments. Round hours to the nearest hour. 12. Determine and interpret the factory overhead controllable variance. 13. Determine and interpret the factory overhead volume variance. 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 1,250 cases of production used in the budgets for parts (6) and (7)
