Genuine Spice Inc. began operations on January 1 of the currentyear. The company produces eight- ounce bottles of hand and bodylotion called Eternal Beauty. The lotion is sold wholesale in12-bottle cases for $100 per case. There is a selling commission of$20 per case. The January direct materials, direct labor, andfactory overhead costs are as follows:

DIRECT MATERIALS
	Cost Behavior	Units per Case	Cost per Unit	Cost per Case
Cream base	Variable	100 oz.	$0.02	$ 2.00
Natural oils	Variable	30 oz.	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 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 thenumber of cases required to break even per month. The utilitiescost, which is part of factory overhead, is a mixed cost. Thefollowing information was gathered from the first six months ofoperation 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-Part A: 1. Determine the fixed and variable portion of the utility costusing the high-low method. 2. Determine the contribution margin per case. 3. Determine the fixed costs per month, including the utilityfixed cost from part (1). 4. Determine the break-even number of cases per month. Part B—August Budgets During July of the current year, the management of Genuine SpiceInc. asked the controller to prepare August manufacturing andincome statement budgets. Demand was expected to be 1,500 cases at$100 per case for August. Inventory planning information isprovided as follows: Finished Goods Inventory: Cases Cost Estimated finished goods inventory, August 1 300 $12,000 Desired finished goods inventory, August 31 175 7,000 Materials Inventory: Cream Base Oils Bottles (oz.) (oz.) (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 foreither the beginning or end of the month; thus, none was assumed.In addition, there was no change in the cost per unit or estimatedunits per case operating data from January. Required-Part B: 5. Prepare the August production budget.* 6. Prepare the August direct materials purchases budget.* 7. Prepare the August direct labor cost budget. Round the hoursrequired for production to the nearest hour.* 8. Prepare the August factory overhead cost budget. If an amountbox does not require an entry, leave it blank. (Entries of zero (0)will be cleared automatically by CNOW.)* 9. Prepare the August budgeted income statement, including sellingexpenses. NOTE: Because you are not required to prepare a cost ofgoods sold budget, the cost of goods sold calculations will be partof the budgeted income statement.* *Enter all amounts as positive numbers. Part C—August Variance Analysis During September of the current year, the controller was askedto perform variance analyses for August. The January operating dataprovided the standard prices, rates, times, and quantities percase. There were 1,500 actual cases produced during August, whichwas 250 more cases than planned at the beginning of the month.Actual data for August were as follows: Actual Direct Materials Price per Unit Quantity per Case Cream base $0.016 per oz. 102 oz. Natural oils $0.32 per oz. 31 oz. Bottle (8-oz.) $0.42 per bottle 12.5 bottles Actual Direct Actual Direct Labor Labor Rate Time per Case Mixing $18.20 19.50 min. Filling 14.00 5.60 min. Actual variable overhead $305.00 Normal volume 1,600 cases The prices of the materials were different from standard due tofluctuations in market prices. The standard quantity of materialsused per case was an ideal standard. The Mixing Department used ahigher grade labor classification during the month, thus causingthe actual labor rate to exceed standard. The Filling Departmentused a lower grade labor classification during the month, thuscausing the actual labor rate to be less than standard Required-Part C: 10. Determine and interpret the direct materials price and quantityvariances for the three materials. 11. Determine and interpret the direct labor rate and timevariances for the two departments. Round hours to the nearest tenthof an hour. 12. Determine and interpret the factory overhead controllablevariance. 13. Determine and interpret the factory overhead volumevariance. 14. Why are the standard direct labor and direct materials costs inthe calculations for parts (10) and (11) based on the actual1,500-case production volume rather than the planned 1,375 cases ofproduction used in the budgets for parts (6) and (7)?