Part A. Break-even Analysis The management of Quivers 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: Instructions Month January Case Production Utility Total Cost 500 $ 600.00 February 800 $ 660.00 March 1,200 $ 740.00 April 1,100 $ 720.00 May 950 $ 690.00 June 1,025 $ 705.00 1. Determine the fixed and variable portion of the utility cost using the high-low method. 2. Determine the contrinution margin per case. 3. Determine the fixed costs per month, including the utility fixed cost from question (1). 4.Determine the break-even number of cases per month Part B. Budgets During July of the current year, the management of Quivers Inc. asked the controller, Robin, to prepare August manufacturing and income statement budgets. Demand was expected to be 1,500 cases of jet wax at $100 per case for August. Inventory planning information is provided as follows: Finished Goods Inventory Cases Estimated finished goods inventory, August 1 Desired finished goods inventory, August 31 300 Cost $12,000.00 175 $ 7,000.00 Materials Inventory Cream Base (oz.) Oils (oz.) Bottels (oz.) Estimated materials inventory, August 1 Desired materials inventory, August 31 250 290 600 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. Instructions 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. 9.Prepare the August budgeted income statement, including selling expenses. Part C. August Variance Analysis During September of the current year, Robin 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 Material Actual Direct Materials Price per Unit Materials Quantity per Case Cream Base (oz.) $ 0.160 102 Natural Oils (oz.) $ 0.32 31 Bottles $ 0.42 12.5 Actual Direct Actual Direct Activity Labor Time per Labor Rate Case (minutes) Mixing $ 18.20 19.50 Filling $ 14.00 5.60 Actual Variable Overhead $ 305.00 Normal Volume (Cases) 1,600 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. Intructions 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 hour. 12. Determine and interpret the factory overhead controllable variance. 13.Determine and interpret the factory overhead volume variance. Assess 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 questions (6) and (7)? REQUIREMENT #1: Determine the fixed and variable portion of the utility cost using the high-low method. Variable Cost per Unit 0.20 High-Low Method Difference in Total Cost 150 Difference in Production 700 Variable Units of Total Cost || Cost per x Producti Fixed Unit on Costs High Point Low Point AAA 740.00 = $ 600.00 $ A A $ 0.20 1,200 $500.00 0.20 X 500 $500.00 REQUIREMENT #2: Determine the contrinution margin per case. Selling Price Less variable costs per case: Contribution Margin $ 100.00 Direct materials Direct labor Utilities (see High-Low Method) Selling expenses Total variable costs per case +A $ $ A GA 17.00 7.20 0.20 20.00 Contribution margin per case 44.40 $ 55.60 REQUIREMENT #3: Determine the fixed costs per month, including the utility fixed cost from question (1). Total Fixed Costs Utilities [see High-Low Method] Facility lease Equipment depreciation Supplies $ 500 $ 14,000 $ 4,300 $ 660 19.460 Requirement #4: Determine the break-even number of cases per month. Break-even Sales (units) 350 Break-even Analysis Fixed Costs Unit Contribution Margin 19,460.00 $ 55.60 REQUIREMENT #5: Develop the production budget. Quivers Inc. Production Budget For the Month Ended August 31 Cases Expected cases to be sold 1,500 Plus desired ending inventory 175 Total units required 1,675 Less estimated beginning -300 inventory Total units to be produced 1,375 Requirement #6: Develop the direct materials purchases budget. Quivers Inc. Direct Materials Purchases Budget For the Month Ended August 31 Units required for production Cream Base (oz.) 137,500 Natural Bottles Total Oils (oz.) (bottles) 41,250 16,500 Plus desired ending inventory 1,000 360 240 Total units required 138,500 41,610 16,740 Less estimated beginning inventory Total materials to be purchased 250 290 600 Unit price 138,250 $0.02 41,320 16,140 $0.30 $0.50 Total direct materials to be $2,765 $12,396 $70 $23,231 purchased Cream Base Natural Oils Bottles Raw Materia Units x Volun Requirement #7: Develop the direct labor cost budget. Quivers Inc. Direct Labor Cost Budget For the Month Ended August 31 Mixing nours required for produCTION Ophelia Wax Product 458 Hourly rate $ 18.00 Total direct labor cost # # # # Filling Total 115 $ 14.00 Labor Mixing Filling Units x Production Time / Hour Requirement #8: Develop the factory overhead cost budget. Utilities Facility Lease Equipment Depreciation Supplies Quivers Inc. Factory Overhead Cost Budget For the Month Ended August 31 Total factory overhead cost Cost Cases Cost Total Fixed Variable Total Fixed Cost [from Question 31 500 275 775 Variable Utility Cost 14,000 14000 4,300 4300 $ 660 660 $ 19,460.00 $ 275 $ 19,735 Requirement #9: Create the budgeted income statement. Sales Finished goods inventory, August 1 Direct materials: Quivers Inc. Budgeted Income Statement For the Month Ended August 31 Direct materials inventory, August 1 Direct materials purchases [from Question 6] Cost of direct materials available for use Less direct materials inventory, August 31 Cost of direct materials placed in production Direct labor [from Question 7] Factory overhead [from Question 8] 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 from operations Units x Price = Total Sales Selling Expenses Cream Base (oz.) Oils (oz.) Bottels (oz.) Total Direct materials inventory, August 1 Direct materials inventory, August 31 Rate Cream Base (oz.) Oils (oz.) Bottels (oz.) Requirement #10: Determine the direct materials variance. Actual Price Standard Price Difference Direct Materials Price Variance *Actual Quantity (Units) Direct Materials Price Variance Analysis Actual Quantiy Standard Quantity Difference Standard Price Decision Cream Base Natural Oils Bottles Cases Amount Direct Materials Quantity Variance Direct Materials Quantity Variance Analysis Decision Total Cream Base Natural Oils Bottles Cases Amount Total Actual Quantity Cream Base Natural Oils Bottles Standard Quantity Cream Base Natural Oils Bottles Requirement #11: Determine the direct labor variance. Direct Labor Rate Variance Actual Rate Standard Rate Difference Actual Time (Hours) Analysis Direct Labor Rate Variance Actual Time Standard Time Difference * Standard Rate Analysis Decision Mixing Department Filling Department Units Minutes Hours Total Direct Labor Time Variance Mixing Department Filling Department Units Minutes Direct Labor Time Variance Decision Hours Actual Time Mixing Filling Standard Time Mixing Filling Total Requirement #12: Determine the factory overhead variance. Factory Overhead Controllable Variance Actual variable overhead Variable overhead at standard cost Factory overhead controllable variance Decision Variance overhead (utility cost) at Cases standard cost Total fixed factory overhead Total Factory Overhead Volume Variance Normal volume (cases) Actual volume (cases) Difference * Fixed factory overhead rate Fixed factory overhead rate Cases Total fixed factory overhead Total Analysis $0.00 Decision