Question

Instructions Amount Descriptions Questions (Part A) Production Budget Instructions 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 percase. There is a soling 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 Creambase Variable 100 oz. 50.02 $ 200 Naturals Variable 30 oz. 0.30 9.00 Bottle (B-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 1440 120 25 min $7.20 Check My Work 2 more Check My Work uses remaining

Answer 1

Part A (Break even analysis) - 1 - Fixed and variable cost using high low method

High low method formula

Variable cost per case: (Highest Activity cost - Lowest activity cost)

(Highest Activity case - Lowest activity case)

= (740-600)/ (1200-500) = 140/700 = $0.2 per case

Fixed cost = Highest activity cost - (Variable cost per unit X Highest activity units)

= 740 - (0.2 X 1200) = $ 500

Month	Cases production	Utilities total cost	Fixed	Variable (Total - Fixed)
January	500	600	500	100
February	800	660	500	160
March	1200	740	500	240
April	1100	720	500	220
May	950	690	500	190
June	1025	705	500	205

Part A (Break even analysis) - 2 - Contribution margin per case

Selling price per case	As given		100
Variable cost per case
Direct material	As given	17
Direct labour	As given	7.2
Utility cost	As calculated	0.2	24.4
Contribution margin per case			$ 75.6

Part A (Break even analysis) - 3 - Fixed cost per month

Facility lease	As given	14000
Eqp dep	As given	4300
Supplies	As given	660
Utilities	As calculated	500
Fixed cost per month		$ 19460

Part A (Break even analysis) - 4 - Break-even no. of cases per month

Break even units = Fixed cost per month/ Contribution margin per case

= 19460 / 75.6 = 257 units