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Comprehensive Problem 5 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: aw DIRECT MATERIALS 0 P Direct Materials Cost per Case $ 2.00 Units per Case Cost per Unit Cost Behavior 100 oz. Variable $0.02 Cream base Natural oils 9.00 Variable 0.30 30 oz. Bottle (8-oz.) 12 bottles 0.50 6.00 Variable bhsnl $17.00 DIRECT LABOR Cost Behavior Time per Case Labor Rate per Hour Direct Labor Cost per Case Department Mixing bns Filling d toaoim1g Variable 20 min. 0 $18.00 $6.00 Variable 14.40 1.20 25 min. $7.20 000 pxsl 0 nt b000,0 FACTORY OVERHEAD 09 201 MBO 9d 07 andorioinol Cost Behavior Total Cost Utilities Mixed 600 Facility lease Equipment depreciation Fixed 14,000 Fixed 4,300 Supplies snon vol abiebn Fixed 660 26lobe$19,560 i niob tnem Part A-Break-Even Analysis The management of Genuine Spice Inc. wants to determine the number of cases required e oloy to break even per month. The util ities cost, which is part of factory overhead, is a mixed (onninno 1167 Evaluating Variances from Standard Costs Chapter 23 cost. The following information was gathered from the first six months of operation re- garding this cost Utility Total Cost Case Production ITT $600 500 January 660 February 800 740 1,200 March 720 1,100 April 690 950 May enpo M b sbL a 705 1,025 June Instructions 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. 2. $55.60 w 1 site 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: unah Finished Goods Inventory: Cost Cases Estimated finished goods inventory, August 1 Desired finished goods inventory, August 31 $12,000 300 7,000 175 Materials Inventory: Bottles Cream Base (oz. Oils (oz. (bottles) ubod gidvions a s sd blto ted nouc 600 250 290 Estimated materials inventory, August 1 360 240 1,000 Desired materials inventory, August 31 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. i0Esd ldod obb 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. 6. Bottles purchased, $8,070 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, 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. $0.32 per oz. 102 oz. Natural oils 31 oz. OZ. A0olje Bottle (8-oz.) $0.42 per bottle 12.5 bottles (ContinuodY 1168 Chapter 23 Evaluating Variances from Standard Costs woll Actual Direct Labor Time per Case Actual Direct Labor Rate 19.50 min. $18.20 Mixing Filling 5.60 min. 14.00 $305.00 dbiv1,600 cases Actual variable overhead Normal volume 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 Mix- ing 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. Instructions 10. Determine and interpret the direct materials price and quantity variances for the three materials. 9 oinG 11. Determine and interpret the direct labor rate and time variances for the two departments. Round hours to the nearest hour 11. Mixing time variance, $(225) F 12. Determine and interpret the factory overhead controllable variance. 12. $5 U 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)
