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$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 |
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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 |
300 |
$12,000 |
Desired finished goods inventory, August 31 |
175 |
7,000 |
Materials Inventory:
|
Cream Base |
Oils |
Bottles |
(oz.) |
(oz.) |
(bottles) |
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.
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Required-Part B: |
5. |
Prepare the August production budget.* |
6. |
Prepare the August direct materials purchases budget.* |
7. |
Prepare the August direct labor cost budget. Round the hours
required for production to the nearest hour.* |
8. |
Prepare the August factory overhead cost 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.*
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*Enter all amounts as positive numbers. |
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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 oz. |
Natural oils |
$0.32 per oz. |
31 oz. |
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 from 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
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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 tenth
of an hour. |
12. |
Determine and interpret the factory overhead controllable
variance. |
13. |
Determine and interpret the factory overhead volume
variance. |
14. |
Why are the standard direct labor and direct materials costs in
the calculations for parts (10) and (11) based on the actual
1,500-case production volume rather than the planned 1,375 cases of
production used in the budgets for parts (6) and (7)? |
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