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

Question

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:

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:

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.

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).

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

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

Explanation / Answer

1)

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

                      = 140/700

                       = $ .20 per case

740-[.20*1200]

500

600-[500*.20]

500

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

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

          = 19460/55.6

         = 350 cases

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

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