Comprehensive Problem 5Part 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 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 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 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 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 $ $ 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

Question

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 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 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
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 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 $ $
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

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