Month Case Production Utility Total Cost: January February 500 $600 800 660 March 1,200 740 April May 1,100 720 950 690 June 1,025 705 DIRECT MATERIALS Cost Units Direct Materials Cost per Unit Behavior per Case Cost per Case Cream base Variable 100 ozs. $0.02 $ 2.00 Natural oils Variable 30 ozs. 0.30 9.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECT LABOR Time per Case 20 min. Labor Rate Direct Labor Cost per Case $6.00 Cost Department Behavior per Hour Mixing Filling Variable $18.00 Variable 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed 600 Facility lease Equipment depreciation Supplies Fixed 14,000 Fixed 4,300 Fixed 660 $19,560

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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:

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:

Instructions
1. Determine the fixed and variable portions 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.

Month
Case Production
Utility Total Cost:
January
February
500
$600
800
660
March
1,200
740
April
May
1,100
720
950
690
June
1,025
705
Transcribed Image Text:Month Case Production Utility Total Cost: January February 500 $600 800 660 March 1,200 740 April May 1,100 720 950 690 June 1,025 705
DIRECT MATERIALS
Cost
Units
Direct Materials
Cost
per Unit
Behavior
per Case
Cost per Case
Cream base
Variable
100 ozs.
$0.02
$ 2.00
Natural oils
Variable
30 ozs.
0.30
9.00
Bottle (8-oz.)
Variable
12 bottles
0.50
6.00
$17.00
DIRECT LABOR
Time
per Case
20 min.
Labor Rate
Direct Labor
Cost per Case
$6.00
Cost
Department
Behavior
per Hour
Mixing
Filling
Variable
$18.00
Variable
14.40
1.20
25 min.
$7.20
FACTORY OVERHEAD
Cost Behavior Total Cost
Utilities
Mixed
600
Facility lease
Equipment depreciation
Supplies
Fixed
14,000
Fixed
4,300
Fixed
660
$19,560
Transcribed Image Text:DIRECT MATERIALS Cost Units Direct Materials Cost per Unit Behavior per Case Cost per Case Cream base Variable 100 ozs. $0.02 $ 2.00 Natural oils Variable 30 ozs. 0.30 9.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECT LABOR Time per Case 20 min. Labor Rate Direct Labor Cost per Case $6.00 Cost Department Behavior per Hour Mixing Filling Variable $18.00 Variable 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior Total Cost Utilities Mixed 600 Facility lease Equipment depreciation Supplies Fixed 14,000 Fixed 4,300 Fixed 660 $19,560
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