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This question 22 a Comprehensive Problem 5 Part A: Note: You must complete part A before...

This question 22 a

Comprehensive Problem 5
Part A:

Note: You must complete part A before completing parts B and C.

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
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 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

Required:

1. Determine the fixed and variable portions of the utility cost using the high-low method. Round the per unit cost to the nearest cent.

At the High Point At the Low Point
Variable cost per unit $ $
Total fixed cost
Total cost

2. Determine the contribution margin per case. Enter your answer to the nearest cent.

Contribution margin per case $

3. Determine the fixed costs per month, including the utility fixed cost from part (1).

Utilities cost (from part 1) $
Facility lease
Equipment depreciation
Supplies
Total fixed costs $

4. Determine the break-even number of cases per month.
cases

Solutions

Expert Solution

1)

cost Activity
Highest activity 740 1200
lowest activity 600 500
Change 140 700

Variable cost per case : change in cost /change in activity

                      = 140/700

                       = $ .20 per case

High point low point
variable cost .20 .20
Fixed cost

740-[.20*1200]

500

600-[500*.20]

500

Total cost 740 600

b)Total variable cost of sales per case : Direct material+direct labor+ utilites

       17+7.2+.20

     $ 24.4

contribution =price- variable cost of sales -selling commission

=100- 24.4-20

= 55.60

3)Total fixed cost

Utilities 500
Facility lease 14000
equipment depreciation 4300
supplies 660
Total fixed cost 19460

4)Break even point =Fixed cost /contribution per case

          = 19460/55.6

         = 350 cases


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