Comprehensive Problem 5
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 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 $20 per case. The January direct materials, direct labor, and factory overhead costs are as follows:
Part A—Break-Even Analysis
The management of Genuine Spice Inc. wants to determine the number of cases required to break even per month. The utilities cost, which is part of factory overhead, is a mixed cost. The following information was gathered from the first six months of operation regarding this cost:
|Case Production||Utility Total Cost|
1. Determine the fixed and variable portion of the utility cost using the high-low method. Round the per unit cost to the nearest cent.
|At High Point||At Low Point|
|Variable cost per unit||$||$|
|Total fixed cost||$||$|
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)||$|
|Total fixed costs||$|
4. Determine the break-even number of cases per month.