Genuine Spice Inc. began operations on January 1, 2016. The company produces a h

Question

Genuine Spice Inc. began operations on January 1, 2016. The company produces a hand and body lotion in an eight-ounce bottle 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 CostDirect Materials per Unt Cost per Case Cost Behavior Variable Variable Units Cream base Natural oils Bottle (8-oz.)Variable per Case 100 ozs 30 ozs 12 bottles $0.02 0.30 0.50 $2.00 9.00 6.00 $17.00 DIRECT LABOR Cost Behavior Variable Variable Time per t.ase 20 min Labor Rate er Hour $18.00 14.40 Direct Labor Cost per Case S6.00 1.20 $7.20 Department Mixing Filling 25 min FACTORY OVERIEAD Utilities Facility lease Equipment depreciation Supplies Cost Behavior Mixed Fixed Fixed Fixed Total Cost $600 14,000 4,300 660 $19,560 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

Explanation / Answer

January February Differences Case production ( units)                   500                      800                 300 Utility total cost ( $ )                   600                      660                   60 Variable cost is the additional cost for additional units of cases. Variable cost per unit = ( Differene in cost/ Difference in unist                                        = $ 60 / 300 = $ 0.20 per case Total variable cost ( January ) = 500 cases x $ 0.20 per case                                                       = $ 100 Fixed portion of utility cost = $ 600 - $ 100 = $ 500 $ Direct material cost per case               17.00 Direct Labor cost per case                 7.20 Variable factory overhead                 0.20 Total variable cost of manufacture per case               24.40 Facility lease             14,000 Utilities                   500 Equipment depreciation               4,300 Supplies                   660 Total fixed costs per month             19,460 $ $ Selling price per case             100.00 Less: Sales commission             (20.00) Net selling price per case                  80.00 Less: Variable cost per case                 (24.40) Contribution margin per case                  55.60 Break-even number of cases per month = Fixed costs per month / Contribution margin per case                                                                          = $ 19,460 / $ 55.40 = 350 cases

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