Genuine Spice Inc. began operations on January 1, 2016. The company produces eig
ID: 2467407 • Letter: G
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:
2016
Case Production
Utility Total 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:
Cases
Cost
Materials Inventory:
Cream Base
Oils
Bottles
(ozs.)
(ozs.)
(bottles)
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
Price per Unit
Quantity per Case
Actual Direct
Actual Direct Labor
Labor Rate
Time per Case
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.
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. NOTE: Because you are not required to prepare a cost of goods sold budget, the cost of goods sold calculations will be part of the budgeted income statement.
10. Determine and interpret the direct materials price and quantity variances for the three materials.
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 $17.00Explanation / Answer
Answer Part A. 1. As per High Low method Case production Utility Total Cost Jan 500 600 March 1,200 740 Difference 700 140 Variable Cost = Change in Cost / Change in Production = 140 / 700 Cases = $0.20 per Case Fixed Cost = $740 - (1200 X $0.20) = $500 per Month Answer Part A. 2. Calculation of Contribution Margin Per Case Selling Price Per Case (A) 100.00 Less: Variable Cost Direct Materials Cream Base 2.00 Natural Oils 9.00 Bottle (8-oz) 6.00 17.00 Direct Labor Mixing Deptt. 6.00 Filling Deptt. 1.20 7.20 Factory overhead Utilities 0.20 Selling Commission 20.00 Total Variable Cost (B) 44.40 Contribution (A-B) 55.60 Answer Part A. 3. Calculation Fixed Cost per Month Factory Overheads Utilities 500 Facility Lease 14,000 Equipment depreciation 4,300 Supplies 660 Total Fixed Costs 19,460 Answer Part A. 4. Break Even Point in units = Fixed Cost / Contribution per Unit Break Even Point in cases = $19460 / 55.60 = 350 Cases As per Chegg Guidelines, we can answer only one question at a time having four subparts. For other parts please ask it again.
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