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 . .

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 . .

Name: Genuine Spice Inc. began operations on January 1 of the current year.
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Description: 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 commi

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter3: Process Cost Systems

Section: Chapter Questions

Problem 4E: The cost accountant for River Rock Beverage Co. estimated that total factory overhead cost for the...

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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 .

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