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 Cost per Case Cream base Variable 100 oz. $0.02 $ 2.00 Natural oils Variable 30 oz. 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 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 The management of Genuine Spice Inc. wants 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: Case Production Utility Total Cost January 500 $600 February 800 660 March 1,200 740 April 1,100 720 May 950 690 June 1,025 705 Required-Part A: 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. Should the variable cost per unit be the same in both cases? 1. Determine the fixed and variable portion of the utility cost using the high-low method. At High Point At Low Point Variable cost per unit Total fixed cost Total cost
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 Cost per Case Cream base Variable 100 oz. $0.02 $ 2.00 Natural oils Variable 30 oz. 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 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 The management of Genuine Spice Inc. wants 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: Case Production Utility Total Cost January 500 $600 February 800 660 March 1,200 740 April 1,100 720 May 950 690 June 1,025 705 Required-Part A: 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. Should the variable cost per unit be the same in both cases? 1. Determine the fixed and variable portion of the utility cost using the high-low method. At High Point At Low Point Variable cost per unit Total fixed cost Total cost
Chapter1: Financial Statements And Business Decisions
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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 | Cost per Case | |
| Cream base | Variable | 100 oz. | $0.02 | $ 2.00 |
| Natural oils | Variable | 30 oz. | 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 | 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 |
Fixed | 4,300 |
| Supplies | Fixed | 660 |
| $19,560 |
The management of Genuine Spice Inc. wants 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:
|
|
Case Production
|
Utility Total Cost
|
| January | 500 | $600 |
| February | 800 | 660 |
| March | 1,200 | 740 |
| April | 1,100 | 720 |
| May | 950 | 690 |
| June | 1,025 | 705 |
| Required-Part A: | |
| 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. |
Should the variable cost per unit be the same in both cases?
1. Determine the fixed and variable portion of the utility cost using the high-low method.
|
|
At High Point
|
At Low Point
|
| Variable cost per unit |
|
|
| Total fixed cost |
|
|
| Total cost |
|
|
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