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:
| | Case | Cost |
| Estimated finished goods inventory, August 1 | 300 | $12,000 |
| Desired finished goods inventory, August 31 | 175 | 7,000 |
Materials Inventory:
| | Cream Base (ozs.) | Oils (ozs.) | Bottles (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.
Part C:
Note: This section is a continuation from Parts A and B of the comprehensive problem. Be sure you have completed Parts A and B before attempting Part C. You may have to refer back to data presented in Parts A and B as well as use answers from those parts when completing this section.
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 | Direct Materials Cost per Case | | Cream base | Variable | 100 ozs. | $0.02 | | $2.00 | | | Natural oils | Variable | 30 ozs. | 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 | Direct Labor 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 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 | Actual Direct Materials Quantity per Case |
| Cream base | $0.016 | per oz. | 102 | ozs. |
| Natural oils | $0.32 | per oz. | 31 | ozs. |
| Bottle (8-oz.) | $0.42 | per bottle | 12.5 | bottles |
| | Actual Direct Labor Rate | Actual Direct Labor 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: 5. Prepare the August production budget. Enter all amounts as positive numbers. Genuine Spice Inc. Production Budget For the Month Ended August 31 Cases Expected cases to be sold Plus desired ending inventory Total cases required Less estimated beginning inventory Total cases to be produced 6. Prepare the August direct materials purchases budget. Enter the unit price to the nearest cent. Enter all amounts as positive numbers. Genuine Spice Inc. Direct Materials Purchases Budget For the Month Ended August 31 Direct Materials Cream Base (ozs.) Natural Oils (ozs.) Bottles (bottles) Total Units required for production Plus desired ending inventory Less estimated beginning inventory Direct materials to be purchased Unit price Total direct materials to be purchased $ 7. Prepare the August direct labor cost budget. For hours required, round to nearest whole hour. For hourly rate, enter to the nearest cent, if required. Genuine Spice Inc. Direct Labor Cost Budget For the Month Ended August 31 Mixing Filling Total Hours required for production: Hand and body lotion Hourly rate Total direct labor cost $ $ 8. Prepare the August factory overhead cost budget. If an amount box does not require an entry, leave it blank. Genuine Spice Inc. Factory Overhead Cost Budget For the Month Ended August 31 Factory overhead: Fixed Variable Total Utilities Facility lease Equipment depreciation Supplies Total factory overhead cost 9. Prepare the August budgeted income statement, including selling expenses. Enter all amounts as positive numbers. 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 Less direct materials inventory, August 31 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 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. Determine and interpret the direct materials price and quantity variances for the three materials. Enter the costs in dollars and cents (carried to three decimal places when required). Enter all amounts as positive numbers. Direct Materials Price Variance: Cream Base Natural Oils Bottles Actual price Standard price Difference Actual quantity (units) OZS. X OZS. btls. Direct materials price variance Indicate if favorable or unfavorable Enter the standard price to two decimal places. Direct Materials Quantity Variance: Cream Base Natural Oils Bottles Actual quantity OZS. OZS. btls. Standard quantity Difference OZS. OZS. btls. Standard price X $ X $ X $ Direct materials quantity variance $ $ $ Difference OZS. OZS. btls. Standard price X $ X $ X $ Direct materials quantity variance Indicate if favorable or unfavorable 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. Do not round hours. Enter the costs in dollars and cents. Enter all amounts as positive numbers. Direct Labor Rate Variance: Mixing Department Filling Department Actual rate Standard rate Difference $ Actual time (hours) X X Dir labor rate variance $ $ Indicate if favorable or unfavorable Direct Labor Time Variance: Mixing Department Filling Department Actual time (hours) Standard time (hours) Difference Standard rate X $ X $ Direct labor time variance $ $ Indicate if favorable or unfavorable 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 all amounts as positive numbers. Actual variable overhead $ Variable overhead at standard cost Factory overhead controllable variance $ Indicate if favorable or unfavorable The factory overhead controllable variance was caused by the variance in 13. Determine and interpret the factory overhead volume variance. When determining the fixed factory overhead rate, round the factory overhead rate to two decimal places and the factory overhead volume variance to whole dollars. Enter all amounts as positive numbers. Normal volume (cases) Actual volume (cases) Difference Fixed factory overhead rate $ Factory overhead volume variance $ Indicate if favorable or unfavorable 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)? Required: 5. Prepare the August production budget. Enter all amounts as positive numbers. Genuine Spice Inc. Production Budget For the Month Ended August 31 Cases Expected cases to be sold Plus desired ending inventory Total cases required Less estimated beginning inventory Total cases to be produced 6. Prepare the August direct materials purchases budget. Enter the unit price to the nearest cent. Enter all amounts as positive numbers. Genuine Spice Inc. Direct Materials Purchases Budget For the Month Ended August 31 Direct Materials Cream Base (ozs.) Natural Oils (ozs.) Bottles (bottles) Total Units required for production Plus desired ending inventory Less estimated beginning inventory Direct materials to be purchased Unit price Total direct materials to be purchased $ 7. Prepare the August direct labor cost budget. For hours required, round to nearest whole hour. For hourly rate, enter to the nearest cent, if required. Genuine Spice Inc. Direct Labor Cost Budget For the Month Ended August 31 Mixing Filling Total Hours required for production: Hand and body lotion Hourly rate Total direct labor cost $ $ 8. Prepare the August factory overhead cost budget. If an amount box does not require an entry, leave it blank. Genuine Spice Inc. Factory Overhead Cost Budget For the Month Ended August 31 Factory overhead: Fixed Variable Total Utilities Facility lease Equipment depreciation Supplies Total factory overhead cost 9. Prepare the August budgeted income statement, including selling expenses. Enter all amounts as positive numbers. 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 Less direct materials inventory, August 31 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 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. Determine and interpret the direct materials price and quantity variances for the three materials. Enter the costs in dollars and cents (carried to three decimal places when required). Enter all amounts as positive numbers. Direct Materials Price Variance: Cream Base Natural Oils Bottles Actual price Standard price Difference Actual quantity (units) OZS. X OZS. btls. Direct materials price variance Indicate if favorable or unfavorable Enter the standard price to two decimal places. Direct Materials Quantity Variance: Cream Base Natural Oils Bottles Actual quantity OZS. OZS. btls. Standard quantity Difference OZS. OZS. btls. Standard price X $ X $ X $ Direct materials quantity variance $ $ $ Difference OZS. OZS. btls. Standard price X $ X $ X $ Direct materials quantity variance Indicate if favorable or unfavorable 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. Do not round hours. Enter the costs in dollars and cents. Enter all amounts as positive numbers. Direct Labor Rate Variance: Mixing Department Filling Department Actual rate Standard rate Difference $ Actual time (hours) X X Dir labor rate variance $ $ Indicate if favorable or unfavorable Direct Labor Time Variance: Mixing Department Filling Department Actual time (hours) Standard time (hours) Difference Standard rate X $ X $ Direct labor time variance $ $ Indicate if favorable or unfavorable 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 all amounts as positive numbers. Actual variable overhead $ Variable overhead at standard cost Factory overhead controllable variance $ Indicate if favorable or unfavorable The factory overhead controllable variance was caused by the variance in 13. Determine and interpret the factory overhead volume variance. When determining the fixed factory overhead rate, round the factory overhead rate to two decimal places and the factory overhead volume variance to whole dollars. Enter all amounts as positive numbers. Normal volume (cases) Actual volume (cases) Difference Fixed factory overhead rate $ Factory overhead volume variance $ Indicate if favorable or unfavorable 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)
