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

Creambase Variable 100 oz. $0.02$ 2

Naturaloils Variable 30 oz. 0.30 9

Bottle(8-oz.) Variable 12 bottles 0.50 6

$17.00

DIRECT LABOR

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

Mixing Variable 20 min. $18 $6

Filling Variable 5 14.40 1.20

25 min. $7.20

FACTORY OVERHEAD

Cost Behavior Total Cost

Utilities Mixed $600

Facility lease Fixed 14000

Equipmentdepreciation 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 1200 740

April 1100 720

May 950 690

June 1025 705

Required-Part A:

1.Determining thefixedandvariableportion of the utility cost using thehigh-lowmethod.

2.Determining thecontribution marginper case.

3.Determining the fixed costs per month, including the utility fixed cost from part (1).

4.Determining 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 preparing 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

Estimatedfinishedgoodsinventory,August1 300 $12000

Desired finished goods inventory, August 31 175 7,000

Materials Inventory:

Cream Base (oz.) Oils (oz.) Bottles (bottles)

Estimatedmaterialsinventory,August1 250 290 600

Desiredmaterialsinventory,August31 1000 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.Preparing the August production budget.

*6.Preparing the August direct materials purchases budget.

*7.Preparing the August direct labor cost budget. Rounding the hours required for production to the nearest hour.

*8.Preparing the August factory overhead cost budget. If an amount box does not require an entry, leaving it blank.

*9. Preparing the August budgeted income statement, including selling expenses.NOTE: Because cost of goods sold budget is not required to be prepared, the cost of goods sold calculations will be part of the budgeted income statement.

**Entering 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

Creambase $0.016 per oz. 102 oz.

Naturaloils $0.32 per oz. 31 oz.

Bottle(8-oz.) $0.42 per bottle 12.5 bottles

Actual Direct Labor Rate Actual Direct Labor Rate Time per Case

Mixing $18.20 19.50 min.

Filling 14 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.Determining and interpret the direct materials price and quantity variances for the three materials.

11.Determining and interpret the direct labor rate and time variances for the two departments. Rounding hours to the nearest tenth of an hour.

12.Determining and interpret the factory overhead controllable variance.

13.Determining 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)?

Question Part A

1. Determine thefixedandvariableportion of the utility cost using thehigh-lowmethod.

At High Point At Low Point

Variablecostperunit ? ?

Total fixed cost ? ?

Total cost ? ?

2. Determining thecontribution marginper case? $______________

3. Determining the fixed costs per month, including the utility fixed cost from part (1).

1 Total fixed costs:

2 ? ?

3 ? ?

4 ? ?

5 ? ?

6 ? ?

4. Determining the break-even number of cases per month ?________cases

5. Prepare the August production budget. Entering all amounts as positive numbers.

Genuine Spice Inc.

Production Budget

For the Month Ended August 31

Cases

? ?

Plus ___? ?

Total cases required ?

Less ___?

Production Budget

For the Month Ended August 31

Cases

? ?

Plus ____? ?

Total cases required ?

Less ____? ?

? ?

Genuine Spice Inc.

Direct Materials Purchases Budget

For the Month Ended August 31

Cream Base (oz.) Natural Oils (oz.) Bottles (bottles) Total

? ? ? ?

Plus ____? ? ? ?

Less____? ? ? ?

Direct materials to be purchased ? ? ?

X ___? ? ? ?

Total _____? ? ? ?

7. Preparing the August direct labor cost budget. Round the hours required for production to the nearest hour. Entering all amounts as positive numbers.

Genuine Spice Inc.Direct Labor Cost Budget

For the Month Ended August 31

Mixing Filling Total

? ? ? ?

X ____? ? ? ?

? ? ? ?

8. Preparing the August factory overhead cost budget. Entering all amounts as positive numbers. If an amount box does not require an entry, leaving it blank. (Entries of zero (0) will be cleared automatically by CNOW.)

Genuine Spice Inc.Factory Overhead Cost Budget

For the Month Ended August 31

Fixed Variable Total

Factory overhead:

Utilities ? ? ?

Facility lease ? ? ?

Equipment depreciation ? ? ?

Supplies ? ? ?

Total ? ? ?

9. Preparing the August budgeted income statement, including selling expenses. Entering all amounts as positive numbers.NOTE: Because it a cost of goods sold budget is not required to prepared, the cost of goods sold calculations will be part of the budgeted income statement.

Genuine Spice Inc.Budgeted Income Statement

For the Month Ended August 31

Revenue from sales ?

Finished goods inventory, August 1 ?

Direct materials:

Direct materials inventory, August 1

Direct materials purchases ?

Cost of direct materials available for use ?

Lessdirectmaterialsinventory,August31 ?

Cost of direct materials placed in production ?

Direct labor ?

Factory overhead ?

Cost of goods manufactured ?

Cost of finished goods available for sale ?

Less finished goods inventory, August 31 ?

Cost of goods sold ?

Gross profit ?

Selling expenses ?

Income before income tax ?

10. Determining and interpret the direct materials price and quantity variances for the three materials. Entering 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. Determining and interpret the direct labor rate and time variances for the two departments. Rounding hours to the nearest tenth of an hour. Entering 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. Determining and interpret the factory overhead controllable variance. Entering a favorable variance as a negative amount, and an unfavorable variance as a positive amount.

Factory Overhead Controllable Variance

(Actual Fixed Overhead or Actual Variable Overhead) ?

(Variable Overhead at standard cost or Fixed overhead at standard cost) ?

Factory overhead controllable variance ?

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

13. Determining and interpret the factory overhead volume variance. Rounding rate to four decimal places. Entering 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(Fixed variable overhead or Variable factory overhead rate) ?

Factory overhead volume variance ?

The volume variance indicates the cost of?________.