Genuine Spice Inc. began operations on January $1$ of the current year. The company produces $8-$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 $100$ ozs. $$0\mathrm{.}02$ $$2\mathrm{.}00$

Natural oils Variable $30$ ozs. $0\mathrm{.}309\mathrm{.}00$

Bottle $(8-$oz$.)$ Variable $12$ bottles $0\mathrm{.}506\mathrm{.}00$

$$17\mathrm{.}00$

DIRECT LABOR

Department Cost Behavior Time per Case Labor Rate per Hour Cost per Case

Mixing Variable $20$ min. $$18\mathrm{.}00$ $$6\mathrm{.}00$

Filling Variable $514\mathrm{.}401\mathrm{.}20$

$25$ min. $$7\mathrm{.}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 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 regarding this cost:

Month

Case Production

Utility Total Cost

January $500$ $$600$

February $800660$

March $1,200740$

April $1,100720$

May $950690$

June $1,025705$

Required$-$Part A:

$1.$ Determine the fixed and variable portions 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 $1300$ $$12,000$

Desired finished goods inventory, August $311757,000$

Materials Inventory:

Cream Base

Oils

Bottles

$($ozs$.)$

$($ozs$.)$

$($bottles$)$

Estimated materials inventory, August $1250290600$

Desired materials inventory, August $311,000360240$

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 budget.

$8.$ Prepare the August factory overhead budget.

$9.$ Prepare the August budgeted income statement, including selling expenses.

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:

Actual Direct Materials

Price per Unit

Quantity per Case

Cream base $$0\mathrm{.}016$ per oz$.102$ ozs.

Natural oils $$0\mathrm{.}32$ per oz$.31$ ozs.

Bottle $(8-$oz$.)$ $$0\mathrm{.}42$ per bottle $12\mathrm{.}5$ bottles

Actual Direct

Actual Direct Labor

Labor Rate

Time per Case

Mixing $$18\mathrm{.}2019\mathrm{.}50$ min.

Filling $14\mathrm{.}005\mathrm{.}60$ min.

Actual variable overhead $$305\mathrm{.}00$

Normal volume $1,600$ 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 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.

$12.$ 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 $(7)?$