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Question: I just need questions 5-13 answered Genuine Spice Inc. began operations on January 1, 2016. The c…
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Genuine Spice Inc. began operations on January 1, 2016. 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 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
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. 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:

2016 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.

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, 2016
300
$12,000
Desired finished goods inventory,
August 31, 2016
175
7,000

Materials Inventory:

Cream
Base

Oils

Bottles

(ozs.)

(ozs.)

(bottles)
Estimated materials inventory,
August 1, 2016
250 290 600
Desired materials inventory, August
31, 2016

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-Part B:
5. Prepare the August production
budget.*
6. Prepare the August direct
materials purchases budget.*
7. Prepare the August direct labor
budget. Round the hours required for production to the nearest
hour.*
8. Prepare the August factory
overhead budget. If an amount box does not require an entry, leave
it blank. (Entries of zero (0) will be cleared automatically by
CNOW.)*
9. Prepare the August budgeted
income statement, including selling expenses. 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. *

* Enter all amounts as positive
numbers.

Part C—August Variance Analysis

During September of the current year, the controller was asked
to perform variance analyses for August. The January operating data
provided the standard prices, rates, times, and quantities per
case. There were 1,500 actual cases produced during August, which
was 250 more cases than planned at the beginning of the month.
Actual data for August were as follows:

Actual Direct Materials

Price
per Unit

Quantity per Case
Cream base $0.016
per oz.
102
ozs.
Natural oils $0.32
per oz.
31
ozs.
Bottle (8-oz.) $0.42
per bottle
12.5
bottles

Actual Direct

Actual Direct Labor
Labor
Rate
Time
per Case
Mixing
$18.20
19.50
min.
Filling
14.00
5.60
min.
Actual variable overhead
$305.00
Normal volume 1,600
cases

The prices of the materials were different than standard due to
fluctuations in market prices. The standard quantity of materials
used per case was an ideal standard. The Mixing Department used a
higher grade labor classification during the month, thus causing
the actual labor rate to exceed standard. The Filling Department
used a lower grade labor classification during the month, thus
causing the actual labor rate to be less than standard.

Required-Part C:
10. Determine and interpret the
direct materials price and quantity variances for the three
materials.
11. Determine and interpret the
direct labor rate and time variances for the two departments. Round
hours to the nearest hour.
12. Determine and interpret the
factory overhead controllable variance.
13. Determine and interpret the
factory overhead volume variance.

Amount Descriptions

Amount Descriptions-Part
A
Controllable variance
Equipment depreciation
Facility lease
Supplies
Utilities
Volume variance

Questions (Part A)

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

Production Budget

5. Prepare the August production budget. Enter all amounts as
positive numbers.

Genuine Spice Inc.
Production Budget
For the Month Ended
August 31, 2016
Cases
Plus
Total
Less

Direct Materials Purchases Budget

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, 2016
Cream Base
(ozs.)
Natural Oils
(ozs.)
Bottles
(bottles)
Total
Plus
Less
Total
X

Direct Labor Budget

7. Prepare the August direct labor budget. Round the hours
required for production to the nearest hour. Enter all amounts as
positive numbers.

Genuine Spice Inc.
Direct Labor Budget
For the Month Ended
August 31, 2016
Mixing Filling Total
X

Factory Overhead Budget

8. Prepare the August factory overhead 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
Budget
For the Month Ended
August 31, 2016
Fixed Variable Total
Factory overhead:
Utilities
Facility lease
Equipment depreciation
Supplies
Total

Budgeted Income Statement

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, 2016
Sales
Finished goods inventory, August 1
Direct materials inventory, August 1
Direct materials purchases
Less direct materials inventory, August 31
Cost of direct materials for production
Direct labor
Factory overhead
Less finished goods inventory, August 31
Cost of goods sold
Gross profit
Selling expenses
Income before income tax

Variance Analysis (Part C)

10. Determine and interpret the direct materials price and
quantity variances for the three materials.

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 .

11. Determine and interpret the direct labor rate and time
variances for the two departments. Round hours to the nearest tenth
of an hour.

Direct Labor Rate
Variance
Mixing Department Filling Department
Difference
X
Direct labor rate variance
Direct Labor Time
Variance
Mixing Department Filling Department
Difference
X
Direct labor time variance

The change in the caused the labor rate variances. This change
have been responsible for the direct labor time variance.

12. Determine and interpret the factory overhead controllable
variance.

Factory Overhead
Controllable Variance
Factory overhead controllable variance

The factory overhead controllable variance was caused by the
variance in .

13. Determine and interpret the factory overhead volume
variance. Round rate to four decimal places.

Factory Overhead Volume
Variance
Normal volume (cases)
Actual volume (cases)
Difference
X
Factory overhead volume variance

The volume variance indicates the cost of .

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