Genuine Spice Inc. Production Budget For the Month Ended August 31 Cases
SOLVE PART B
Comprehensive Problem 5
Part A:
Note: You must complete part A before completing parts B and C.
Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-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
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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:
| Month | 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:
1. Determine the fixed and variable portions of the utility cost using the high-low method. Round the per unit cost to the nearest cent.
| At the High Point | At the Low Point | |
| Variable cost per unit | $0.2 | $0.2 |
| Total fixed cost | 500 | 500 |
| Total cost | 740 | 600 |
2. Determine the contribution margin per case. Round your answer to the nearest cent.
Contribution margin per case $55.6
3. Determine the fixed costs per month, including the utility fixed cost from part (1).
| Utilities cost (from part 1) | 500 |
| Facility lease | 14,000 |
| Equipment depreciation | 4,300 |
| Supplies | 660 |
| Total fixed costs | 19,460 |
4. Determine the break-even number of cases per month.
350 CASES
Part B:
Note: This section is a continuation from Part A of the comprehensive problem. Be sure you have completed Part A before attempting Part B. You may have to refer back to data presented in Part A and use answers from Part A when completing this section.
Genuine Spice Inc. began operations on January 1 of the current year. The company produces 8-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:
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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 | 300 | $12,000 |
| Desired finished goods inventory, August 31 | 175 | 7,000 |
Materials Inventory:
| Cream Base (ozs.) |
Oils (ozs.) |
Bottles (bottles) |
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| 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.
Required:
5. Prepare the August production budget.
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