Question

Genuine Spice Inc. began operations on January 1, 2016. The company produces a hand and body lotion in an eight-ounce bottle 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 Direct Materials 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 Direct Labor 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:

	Case	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 (ozs.)	Oils (ozs.)	Bottles (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:

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
Expected cases to be sold
Plus desired ending inventory
Total
Less estimated beginning inventory
Total units to be produced

6. Prepare the August direct materials purchases budget. Enter the unit price to the nearest cent. 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
Units required for production
Plus desired ending inventory
Less estimated beginning inventory
Direct materials to be purchased
Unit price	$			$			$
Total direct materials to be purchased	$			$			$			$

7. Prepare the August direct labor budget. For hours required, round to nearest whole hour. For hourly rate, enter to the nearest cent, if required.

Genuine Spice Inc. Direct Labor Budget For the Month Ended August 31, 2016
Hours required for production of:	Mixing		Filling		Total
Hand and body lotion
Hourly rate	$		$
Total direct labor cost	$		$		$

8. Prepare the August factory overhead budget. If an amount box does not require an entry, leave it blank.

Genuine Spice Inc. Factory Overhead Budget For the Month Ended August 31, 2016
Factory overhead:	Fixed		Variable		Total
Utilities	$		$		$
Facility lease
Equipment depreciation
Supplies
Total	$		$		$

9. Prepare the August budgeted income statement, including selling expenses. Enter all amounts as positive numbers.

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				$

Answer 1

5.

Genuine Spice Inc.
Production Budget
For the Month Ended August 31, 2016
	Cases
Expected cases to be sold	1500
Plus desired ending inventory	175
Total	1675
Less estimated beginning inventory	-300
Total units to be produced	1375

6.

Genuine Spice Inc.
Direct Labor Budget
For the Month Ended August 31, 2016	Cream Base (ozs.)	Natural Oils (ozs.)	Bottles (bottles)	Total
Units required for production	137500 [1375*100]	41250 [1375*30]	16500 [1375*12]
Plus desired ending inventory	1000	360	240
Less estimated beginning inventory	-250	-290	-600
Direct materials to be purchased	138250	41320	16140
Unit price	0.02	0.3	0.5
Total direct materials to be purchased	2765	12396	8070	23231

7.

Genuine Spice Inc.
Direct Labor Budget
For the Month Ended August 31, 2016	Mixing	Filing	Total
Hand and body lotion	458	115	573
Hourly rate	18	14.4
Total direct labor cost	8250	1650	9900

8.

Genuine Spice Inc.
Factory Overhead Budget
For the Month Ended August 31, 2016
Factory overhead:	Fixed	Variable	Total
Utilities			600
Facility lease		14000	14000
Equipment depreciation		4300	4300
Supplies		660	660
Total		18960	19560

9.

Genuine Spice Inc.
Budgeted Income Statement
For the Month Ended August 31, 2016
Sales		150000
Finished goods inventory, August 1		12000
Direct materials inventory, August 1	392
Direct materials purchases	23231
Less direct materials inventory, August 31	-248
Cost of direct materials for production		23375
Direct labor		9900
Factory overhead		19560
Less finished goods inventory, August 31		-7000
Cost of goods sold		57835
Gross profit		92165
Selling expenses		30000
Income before income tax		62165