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 Cost per Case 100 oz $0.02 $2.00 Cream base Variable Natural oils Variable 30 oz. 0.30 9.00 6.00 Bottle (8-oz.) Variable 12 bottles 0.50 $17.00 DIRECT LABOR Department Cost Behavior Time per Case Labor Rate per Hour Cost per Case $18.00 $6.00 Mixing Variable 20 min. DIRECT LABOR Department Cost Behavior Time per Case Labor Rate per Hour Cost per Case 20 min $18.00 $6.00 Mixing Variable Variable Filling 5 14.40 1.20 25 min $7.20 FACTORY OVERHEAD Cost Behavior Total Cost $600 Utilities ixed Facility lease Fixed 14,000 4,300 Equipment depreciation Fixed Fixed 660 Supplies $19,560 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 1 300 $12,000 7,000 Desired finished goods inventory, August 31 175 Materials Inventory: Cream Base Oils Bottles (bottles) (oz.) (oz.) Estimated materials inventory, August 1 250 290 600 Desired materials inventory, August 31 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 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-Part B 5. Prepare the August production budget. 6. Prepare the August direct materials purchases budget. Prepare the August direct labor cost budget. Round the hours required for production to the nearest hour. 7. 8. Prepare the August factory overhead cost budget. If an amount box does not require an entry, leave it blank. (Entries of zero (0) will be cleared automatically by CNOW.) cost of goods 9. Prepare the August budgeted income statement, including selling expenses. NOTE: Because you are not required to prepare sold budget, the cost of goods sold calculations will be part of the budgeted income statement. Enter all amounts as positive numbers. 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 250 more cases than planned at the beginning of the month. Actual data for August were 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 250 more cases than planned at the beginning of the month. Actual data for August were as folllows: Actual Direct Materials Quantity per Case Price per Unit Cream base S0.016 per oz. 102 oz $0.32 per oz 31 oz Natural oils Bottle (8-oz.) 12.5 bottles $0.42 per bottle Actual Direct Actual Direct Labor Time per Case Labor Rate 19.50 min. Mixing $18.20 Filling 14.00 5.60 min $305.00 Actual variable overhead Normal volume 1,600 cases 5.60 min Filling 14.00 Actual variable overhead $305,00 Normal volume 1,600 cases The prices of the materials were different from 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 Required-Part C 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 two departments. Round hours to the nearest tenth of an 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 1,375 cases of production used in the budgets for parts (6) and (7)? Amount Descriptions-Part A Controllable variance Equipment depreciation Facility lease Supplies Utilities Volume variance 5. Prepare the August production budget. Enter all amounts as positive numbers. Genuine Spice Inc. Production Budget For the Month Ended August 31 Cases Plus Total cases required Less 6. Prepare the August direct materials purchases budget. Enter all amounts as positive numbers. Genuine Spice Inc. Direct Materials Purchases Budget For the Month Ended August 31 Bottles (bottles) Cream Base (oz.) Natural Oils (oz.) Total Plus Less Direct materials to be purchased $ $ $ X $ $ $ $