Question

Comprehensive Problem 5
Part B:

Note: This section is a continuation from Part A of the comprehensive problem. Be sure you have completed Part A before attempting Part B. You may have to refer back to data presented in Part A and use answers from Part A when completing this section.

Genuine Spice Inc. began operations on January 1 of the current year. The company produces eight- 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 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	300	$12,000
Desired finished goods inventory, August 31	175	7,000

Materials Inventory:

	Cream Base (ozs.)	Oils (ozs.)	Bottles (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:

5. Prepare the August production budget. Enter all amounts as positive numbers.

Genuine Spice Inc. Production Budget For the Month Ended August 31
	Cases
Expected cases to be sold
Plus desired ending inventory
Total cases required
Less estimated beginning inventory
Total cases 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
	Direct Materials
	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 cost budget. For hours required, round to nearest whole hour. For hourly rate, enter to the nearest cent, if required.

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

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

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

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
Revenue from sales				$
Finished goods inventory, August 1			$
Direct Materials:
	Direct materials inventory, August 1	$
	Direct materials purchases
	Less direct materials inventory, August 31
	Cost of direct materials placed in production	$
	Direct labor
	Factory overhead
Cost of goods manufactured
Cost of finished goods available for sale			$
Less finished goods inventory, August 31
Cost of goods sold
Gross profit				$
Selling expenses
Income before income tax				$

Answer 1

ANSWER

5. Prepare August production budget GS Inc Production budget Cases Expected cases to be sold 1500 (Plus) Desired ending inventory 175 Total 1675 (Less) Estimated beginning inventory Total units to be produced 300 1375 Total cases to be produced in August is 1,375

6 Prepare direct materials purchase budget GS Inc Direct Materials Purchases Budget For the Month Ended August 31, 2014 Cream Base (ozs.) Natural Oils (ozs.) Bottles (bottles) Total Units required for production Plus desired ending inventory 1375 100 137500 1375 30 41250 1375 1216500 1000 360 240 Less estimated beginning inventory 250 290 600 Direct materials to be purchased Unit price 138250 41320 16140 0.02 0.3 0.50 Total direct materials to be purchased $ $23,231 $2,765 $12,396 $8070

7 Prepare direct labor budget Hours required for production Mixing Filling Total of Hand and body lotion 458.33 115 $14 Hourly rate $18 $8.250 $1,650 $9.900 Total direct labor cost 8. Prepare Factory overhead budget Factory overhead Total Fixed Variable Utilities $500 $275 $775 $0 S14,000 $14,000 Facility Lease Equipment depreciation $4,300 $4,300 $0 $660 Supplies Total $0 $660 $275 $19,735 $19,460 Variable Utilities expense is 0.20x1375-S275 Fixed utility expense is $500

9. Prepare budgeted income statement Budgeted Income statement Sales $1,50,000 Finished goods inventory August 1 $12,000 Direct materials inventory, August 1 392 Direct materials purchases $23,231 Less direct materials inventory, August 31 $248 Cost of direct materials for production $23,375 Direct labor 9900 Factory overhead 19735 Less Finished goods inventory August 31 $7,000 $58,010 Cost of goods sold Gross profit Selling expenses $91,990 $30,000 Income before income tax S61,990

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