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   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 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. 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       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. Genuine Spice Inc. Production Budget For the Month Ended August 31   Cases       Plus       Total cases required   Less             6. Prepare the August direct materials purchases budget. Enter all amounts as positive numbers. Genuine Spice Inc. Direct Materials Purchases Budget For the Month Ended August 31   Cream Base (oz.) Natural Oils (oz.) Bottles (bottles) Total             Plus             Less             Direct materials to be purchased         X                       7. Prepare the August direct labor cost budget. Round the hours required for production to the nearest hour. Enter all amounts as positive numbers. Genuine Spice Inc. Direct Labor Cost Budget For the Month Ended August 31   Mixing Filling Total           X                     8. Prepare the August factory overhead cost 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.) Genuine Spice Inc. Factory Overhead Cost Budget For the Month Ended August 31   Fixed Variable Total Factory overhead:        Utilities        Facility lease        Equipment depreciation        Supplies       Total       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. Genuine Spice Inc. Budgeted Income Statement For the Month Ended August 31 Revenue from sales       Finished goods inventory, August 1       Direct materials:        Direct materials inventory, August 1        Direct materials purchases       Cost of direct materials available for use        Less direct materials inventory, August 31       Cost of direct materials placed in production       Direct labor       Factory overhead       Cost of goods manufactured       Cost of finished goods available for sale       Less finished goods inventory, August 31       Cost of goods sold       Gross profit       Selling expenses       Income before income tax         10. Determine and interpret the direct materials price and quantity variances for the three materials. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount. Direct Materials Price Variance   Cream Base   Natural Oils   Bottles                                   Difference             X                       Direct materials price variance                     Direct Materials Quantity Variance   Cream Base   Natural Oils   Bottles                                         Difference                   X                 Direct materials quantity variance                     The fluctuation in     caused the direct material price variances. All the quantity variances were     indicating    .            .

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
icon
Related questions
icon
Concept explainers
Topic Video
Question
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
 
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
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.
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
 
 
 
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.
Genuine Spice Inc.
Production Budget
For the Month Ended August 31
  Cases
   
 
Plus    
 
Total cases required
 
Less    
 
     
6. Prepare the August direct materials purchases budget. Enter all amounts as positive numbers.
Genuine Spice Inc.
Direct Materials Purchases Budget
For the Month Ended August 31
  Cream Base (oz.) Natural Oils (oz.) Bottles (bottles) Total
   
 
 
 
 
Plus    
 
 
 
 
Less    
 
 
 
 
Direct materials to be purchased
 
 
 
 
X    
 
 
 
 
   
 
 
 
7. Prepare the August direct labor cost budget. Round the hours required for production to the nearest hour. Enter all amounts as positive numbers.
Genuine Spice Inc.
Direct Labor Cost Budget
For the Month Ended August 31
  Mixing Filling Total
   
 
 
 
X    
 
 
 
   
 
 
 
8. Prepare the August factory overhead cost 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.)
Genuine Spice Inc.
Factory Overhead Cost Budget
For the Month Ended August 31
  Fixed Variable Total
Factory overhead:      
 Utilities
 
 
 
 Facility lease
 
 
 
 Equipment depreciation
 
 
 
 Supplies
 
 
 
Total
 
 
 
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.
Genuine Spice Inc.
Budgeted Income Statement
For the Month Ended August 31
Revenue from sales    
 
Finished goods inventory, August 1  
 
 
Direct materials:      
 Direct materials inventory, August 1
 
   
 Direct materials purchases
 
   
Cost of direct materials available for use
 
   
 Less direct materials inventory, August 31
 
   
Cost of direct materials placed in production
 
   
Direct labor
 
   
Factory overhead
 
   
Cost of goods manufactured  
 
 
Cost of finished goods available for sale  
 
 
Less finished goods inventory, August 31  
 
 
Cost of goods sold    
 
Gross profit    
 
Selling expenses    
 
Income before income tax    
 
 
10. Determine and interpret the direct materials price and quantity variances for the three materials. Enter a favorable variance as a negative amount, and an unfavorable variance as a positive amount.
Direct Materials Price Variance
  Cream Base   Natural Oils   Bottles  
   
 
 
 
 
 
 
   
 
 
 
 
 
 
Difference
 
 
 
 
 
 
X    
 
   
 
   
 
   
Direct materials price variance
 
   
 
   
 
   
 
Direct Materials Quantity Variance
  Cream Base   Natural Oils   Bottles  
   
 
   
 
   
 
   
   
 
 
 
 
 
 
Difference
 
   
 
   
 
   
X    
 
 
 
 
 
 
Direct materials quantity variance
 
   
 
   
 
   
 
The fluctuation in     caused the direct material price variances. All the quantity variances were     indicating    .
 
 
 
 
 
 .
 
 
 
Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 2 steps with 3 images

Blurred answer
Knowledge Booster
Costing Systems
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.
Similar questions
Recommended textbooks for you
FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
Accounting
ISBN:
9781259964947
Author:
Libby
Publisher:
MCG
Accounting
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education