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 . .
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 |
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Case Production
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Utility Total Cost
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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. |
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At High Point
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At Low Point
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Variable cost per unit |
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Total fixed cost |
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Total cost |
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Total fixed costs:
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Genuine Spice Inc. | |
Production Budget | |
For the Month Ended August 31 | |
Cases | |
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Plus |
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Total cases required |
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Less |
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Genuine Spice Inc. | ||||
Direct Materials Purchases Budget | ||||
For the Month Ended August 31 | ||||
Cream Base (oz.) | Natural Oils (oz.) | Bottles (bottles) | Total | |
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Plus |
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Less |
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Direct materials to be purchased |
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X |
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Genuine Spice Inc. | |||
Direct Labor Cost Budget | |||
For the Month Ended August 31 | |||
Mixing | Filling | Total | |
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X |
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Genuine Spice Inc. | |||
Factory Overhead Cost Budget | |||
For the Month Ended August 31 | |||
Fixed | Variable | Total | |
Factory overhead: | |||
Utilities |
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Facility lease |
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Equipment depreciation |
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Supplies |
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Total |
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Genuine Spice Inc. | |||
Budgeted Income Statement | |||
For the Month Ended August 31 | |||
Revenue from sales |
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Finished goods inventory, August 1 |
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Direct materials: | |||
Direct materials inventory, August 1 |
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Direct materials purchases |
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Cost of direct materials available for use |
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Less direct materials inventory, August 31 |
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Cost of direct materials placed in production |
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Direct labor |
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Factory overhead |
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Cost of goods manufactured |
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Cost of finished goods available for sale |
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Less finished goods inventory, August 31 |
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Cost of goods sold |
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Gross profit |
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Selling expenses |
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Income before income tax |
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Direct Materials Price Variance | ||||||
Cream Base | Natural Oils | Bottles | ||||
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Difference |
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Direct materials price variance |
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Direct Materials Quantity Variance | ||||||
Cream Base | Natural Oils | Bottles | ||||
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Difference |
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Direct materials quantity variance |
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