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

Question

Genuine Spice Inc. began operations on January 1, 2016. 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:

Part A—Break-Even Analysis

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:

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:

Finished Goods Inventory:

Materials Inventory:

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—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

The prices of the materials were different than 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.

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).

1

Total fixed costs:

2

3

4

5

6

4. Determine the break-even number of cases per month. cases

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

6. Prepare the August direct materials purchases budget. Enter all amounts as positive numbers.

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

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

9. Prepare the August budgeted income statement, including selling expenses. Enter all amounts as positive numbers.

10. Determine and interpret the direct materials price and quantity variances for the three materials.

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. Round hours to the nearest tenth of an hour.

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.

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

13. Determine and interpret the factory overhead volume variance. Round rate to four decimal places.

The volume variance indicates the cost of    .

DIRECT MATERIALS Cost Behavior Units per Case Cost per Unit 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

Explanation / Answer

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

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