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 Cream base Variable 100 oz $0 02 $ 2 00 Natural oils Variable 30 oz 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 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 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 Part A 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 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 Cases Cost Estimated finished goods inventory, August 1 300 $12,000 Desired finished goods inventory, August 31 175 7,000 Materials Inventory Cream Base Oils Bottles (oz ) (oz ) (bottles) 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 operating data from January Required Part B 5 Prepare the August production budget 6 Prepare the August direct materials purchases budget 7 Prepare the August direct labor cost budget Round the hours required for production to the nearest hour 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 ) 9 Prepare the August budgeted income statement, including selling expenses NOTE Because you are not required to prepare a cost of goods sold budget, the cost of goods sold calculations will be part of the budgeted income statement Enter all amounts as positive numbers Part CAugust 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 Actual Direct Materials Price per Unit Quantity per Case Cream base $0 016 per oz 102 oz Natural oils $0 32 per oz 31 oz Bottle (8 oz ) $0 42 per bottle 12 5 bottles Actual Direct Actual Direct Labor Labor Rate Time per Case Mixing $18 20 19 50 min Filling 14 00 5 60 min 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) Variance Analysis (Part C) 10 Determine and interpret the direct materials price and quantity variances for the three materials Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount Direct Materials Price Variance Cream Base Natural Oils Bottles Difference X Direct materials price variance Direct Materials Quantity Variance Cream Base Natural Oils Bottles Difference X Direct materials quantity variance The fluctuation in caused the direct material price variances All the quantity variances were indicating 11 Determine and interpret the direct labor rate and time variances for the two departments Round hours to the nearest tenth of an hour Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount Direct Labor Rate Variance Mixing Department Filling Department Difference X Direct labor rate variance Direct Labor Time Variance Mixing Department Filling Department Difference X Direct labor time variance The change in the caused the labor rate variances This change have been responsible for the direct labor time variance 12 Determine and interpret the factory overhead controllable variance Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount Factory Overhead Controllable Variance Factory overhead controllable variance The factory overhead controllable variance was caused by the variance in 13 Determine and interpret the factory overhead volume variance Round rate to four decimal places Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount Factory Overhead Volume Variance Normal volume (cases) Actual volume (cases) Difference X Factory overhead volume variance The volume variance indicates the cost of 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)

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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

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
Cream base	Variable	100 oz.	$0.02	$ 2.00
Natural oils	Variable	30 oz.	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	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:

	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-Part A:
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 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:

	Cases	Cost
Estimated finished goods inventory, August 1	300	$12,000
Desired finished goods inventory, August 31	175	7,000

Materials Inventory:

	Cream Base	Oils	Bottles
	(oz.)	(oz.)	(bottles)
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 operating data from January.

Required-Part B:

Prepare the August production budget.*

Prepare the August direct materials purchases budget.*

Prepare the August direct labor cost budget. Round the hours required for production to the nearest hour.*

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.)*

Prepare the August budgeted income statement, including selling expenses. NOTE: Because you are not required to prepare a cost of goods sold budget, the cost of goods sold calculations will be part of the budgeted income statement.*

*Enter all amounts as positive numbers.

Part CAugust 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:

	Actual Direct Materials
	Price per Unit	Quantity per Case
Cream base	$0.016 per oz.	102 oz.
Natural oils	$0.32 per oz.	31 oz.
Bottle (8-oz.)	$0.42 per bottle	12.5 bottles

	Actual Direct	Actual Direct Labor
	Labor Rate	Time per Case
Mixing	$18.20	19.50 min.
Filling	14.00	5.60 min.

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)?

Variance Analysis (Part C)

10. Determine and interpret the direct materials price and quantity variances for the three materials. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount.

Direct Materials Price Variance
	Cream Base	Natural Oils	Bottles


Difference
X
Direct materials price variance

Direct Materials Quantity Variance
	Cream Base	Natural Oils	Bottles


Difference
X
Direct materials quantity variance

The fluctuation in caused the direct material price variances. All the quantity variances were indicating .

11. Determine and interpret the direct labor rate and time variances for the two departments. Round hours to the nearest tenth of an hour. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount.

Direct Labor Rate Variance
	Mixing Department	Filling Department


Difference
X
Direct labor rate variance

Direct Labor Time Variance
	Mixing Department	Filling Department


Difference
X
Direct labor time variance

The change in the caused the labor rate variances. This change have been responsible for the direct labor time variance.

12. Determine and interpret the factory overhead controllable variance. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount.

Factory Overhead Controllable Variance


Factory overhead controllable variance

The factory overhead controllable variance was caused by the variance in .

13. Determine and interpret the factory overhead volume variance. Round rate to four decimal places. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount.

Factory Overhead Volume Variance
Normal volume (cases)
Actual volume (cases)
Difference
X
Factory overhead volume variance

The volume variance indicates the cost of .

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)?