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 CostBehavior Units per Case Cost per Unit Cost per Case Cream baseVariable 100 oz. $0.02 $ 2.00 Natural oils Variable 30 oz. 0.309.00 Bottle (8-oz.) Variable 12 bottles 0.50 6.00 $17.00 DIRECTLABOR Department Cost Behavior Time per Case Labor Rate per HourCost per Case Mixing Variable 20 min. $18.00 $6.00 Filling Variable5 14.40 1.20 25 min. $7.20 FACTORY OVERHEAD Cost Behavior TotalCost Utilities Mixed $600 Facility lease Fixed 14,000 Equipmentdepreciation Fixed 4,300 Supplies Fixed 660 $19,560 PartA—Break-Even Analysis The management of Genuine Spice Inc. wants todetermine the number of cases required to break even per month. Theutilities cost, which is part of factory overhead, is a mixed cost.The following information was gathered from the first six months ofoperation regarding this cost: Case Production Utility Total CostJanuary 500 $600 February 800 660 March 1,200 740 April 1,100 720May 950 690 June 1,025 705 Required-Part A: 1. Determine the fixedand variable portion of the utility cost using the high-low method.2. Determine the contribution margin per case. 3. Determine thefixed costs per month, including the utility fixed cost from part(1). 4. Determine the break-even number of cases per month. PartB—August Budgets During July of the current year, the management ofGenuine Spice Inc. asked the controller to prepare Augustmanufacturing and income statement budgets. Demand was expected tobe 1,500 cases at $100 per case for August. Inventory planninginformation is provided as follows: Finished Goods Inventory: CasesCost Estimated finished goods inventory, August 1 300 $12,000Desired finished goods inventory, August 31 175 7,000 MaterialsInventory: Cream Base Oils Bottles (oz.) (oz.) (bottles) Estimatedmaterials inventory, August 1 250 290 600 Desired materialsinventory, August 31 1,000 360 240 There was negligible workin process inventory assumed for either the beginning or end of themonth; thus, none was assumed. In addition, there was no change inthe cost per unit or estimated units per case operating data fromJanuary. 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 Augustfactory overhead cost budget. If an amount box does not require anentry, leave it blank. (Entries of zero (0) will be clearedautomatically by CNOW.)* 9. Prepare the August budgeted incomestatement, including selling expenses. NOTE: Because you are notrequired to prepare a cost of goods sold budget, the cost of goodssold calculations will be part of the budgeted income statement.**Enter all amounts as positive numbers. Part C—August VarianceAnalysis During September of the current year, the controller wasasked to perform variance analyses for August. The Januaryoperating data provided the standard prices, rates, times, andquantities per case. There were 1,500 actual cases produced duringAugust, which was 250 more cases than planned at the beginning ofthe month. Actual data for August were as follows: Actual DirectMaterials Price per Unit Quantity per Case Cream base $0.016 peroz. 102 oz. Natural oils $0.32 per oz. 31 oz. Bottle (8-oz.) $0.42per bottle 12.5 bottles Actual Direct Actual Direct Labor LaborRate 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 Theprices 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 standardRequired-Part C: 10. Determine and interpret the direct materialsprice and quantity variances for the three materials. 11. Determineand interpret the direct labor rate and time variances for the twodepartments. Round hours to the nearest tenth of an hour. 12.Determine and interpret the factory overhead controllable variance.13. Determine and interpret the factory overhead volume variance.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)?