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 $0.02 Direct Materials Cost per Case $ 2.00 Cream base Variable 100 oz. Natural oils Variable 30 oz. 0.30 9.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECT LABOR Time per Case Labor Rate Cost Behavior Direct Labor Department Mixing Filling Cost per Case $6.00 per Hour Variable 20 min. $18.00 Variable 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed $ 600 Facility lease Fixed 14,000 Equipment depreciation Supplies Fixed 4,300 Fixed 660 $19,560 Part A-Break-Even Analysis 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 $600 January February 500 800 660 March 1,200 740 April May 1,100 720 950 690 June 1,025 705 Instructions 1. Determine the fixed and variable portion of the utility cost using the high-low method. 2. Determine the contribution margin per case. Answer 4 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. 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 Estimated finished goods inventory, August 1 Desired finished goods inventory, August 31 300 $12.000 175 7,000 Materials Inventory: Cream Base Oils (oz.) Bottles (oz.) (bottles) Estimated materials inventory, August 1 250 290 600 Desired materials inventory, August 31 1,000 360 240 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. Instructions 5. Prepare the August production budget. 6. Prepare the August direct materials purchases budget. Answer + 7. Prepare the August direct labor cost budget. Round the hours required for production to the nearest hour. 8. Prepare the August factory overhead cost budget. 9. Prepare the August budgeted income statement, including selling expenses.