Question

Instructions:

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 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.

	Required-Part B:
9.	Prepare the August budgeted income statement, including selling expenses.* *For those boxes in which you must enter subtractive or negative numbers use a minus sign.

9. Prepare the August budgeted income statement, including selling expenses. For those boxes in which you must enter subtractive or negative numbers use a minus sign.

Genuine Spice Inc.
Budgeted Income Statement
For the Month Ended August 31
Sales			$
Finished goods inventory, August 1		$
Direct materials inventory, August 1	$
Direct materials purchases	$
Direct materials inventory, August 31	$
Cost of direct materials for production	$
Direct labor	$
Factory overhead	$	$
Finished goods inventory, August 31		$
Cost of goods sold			$
Gross profit			$
Selling expenses			$
Income before income tax			$

Answer 1

Genuine Spice Inc
Budgeted Income Statement
For the Month Ended August 31
Particulars
Revenue from Sales			$1,50,000
Finished goods inventory, August 1		$12,000
Direct Materials
Direct Materials Inventory, August 1	$392
Direct Materials purchases	$25,644
Less: Direct Materials Inventory, August 31	$248
Cost of Direct Materials placed in production	$25,788
Direct Labor	$10,800
Factory Overheads	$19,560	$56,148
		$68,148
Less: Finished goods inventory, August 31		$7,000
Cost of goods sold		$61,148
Gross profit			$88,852
Selling expenses			$30,000
Income before income tax			$58,852

Working Notes:

Gross Profit = Sales - Cost of Goods Sold

Selling Expenses = 1500 x $20 =$30,000

Genuine Spice Inc
Production Budget
For the Month nded August 31
Particulars	Cases
Expected case to be sold	1500
Plus desired ending inventory	175
Total cases required	5000
Less estimated beginning inventory	300
Total cases to be produced	4700

Genuine Spice Inc
Direct Materials Purchases Budget
For the Month nded August 31
Direct Materials
Particulars	Cream Base (ozs.)	Natural Oils (ozs.)	Bottles (bottles)	Total
Units required for production	150000	45000	18000
Plus desired ending inventory	250	290	600
Less estimated beginning inventory	1000	360	240
Direct Materials to be purchased	149250	44930	18360
Unit price	$0.02	$0.30	$0.50
Total Direct Materials to be purchased	$2,985.00	$13,479.00	$9,180.00	$25,644.00

Genuine Spice Inc
Direct labor Cost Budget
For the Month nded August 31
Particulars	Mixing	Filling	Total
Hours required for production
Hand and Body lotion	500	125
Hourly rate	$18.00	$14.40
Total direct labor cost	$9,000.00	$1,800.00	$10,800.00

Genuine Spice Inc
Factory Overhead Cost Budet
For the Month nded August 31
Particulars	Amount
Utilities	$600
Facility Lease	$14,000
Equipment Depreciation	$4,300
Supplies	$660
Total Factory Overhead Cost	$19,560