Question

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:

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:

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

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
	(ozs.)	(ozs.)	(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.

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.

QUESTIONS: Prepare the August direct materials purchases budget. Enter all amounts as positive numbers.

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

Answer 1

QUESTIONS: Prepare the August direct materials purchases budget. Enter all amounts as positive numbers.

we will first prepare production budget for August

Production Budget

Sales	1500
Add: desired ending inventory	175
Less: Beginning inventory	(300)
Budgeted production	1,375

1)Direct Material budget

	cream Base	oils	Bottles
production (Cases)	1375	1375	1375
Raw material per case	100 oz.	30 oZ.	12 bottles
Total raw material needed for production	137,500(1,375*100)	41,250(1375*30)	16,500(1375*12)
Add: desired ending inventory on Aug 31	1000 oz.	360 oz.	240 bottles
Less: Beginning inventory on Aug 1	250 oz.	290 oz.	600
Budgeted purchase(in units)	138,250(13,7500+1,000-250)	41,320(41,250+360-290)	16,140(16500+240-600)
cost per unit	$0.02	$0.30	$0.50
Direct materialpurchase budget (in dollars)	$2,765(138,250*$0.02)	$12,396($0.30*41,320)	$8,070($0.50*16,140)

2) Direct labor hours

	Mixing	Filing	Total
Production (no. of cases)	1,375	1375	1375
labor hour per case	20	5
Total budgeted labor hours	458(1,375*20minutes/60minutes)	115(1,375*5/60minutes)	573(458+115)
cost per labor	$18	$14.40
Budgeted direct labor cost	$8,244(458*$18)	$1,656 ($14.40*115)	$9,900 ($8,244+$1,656)