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Comprehensive Problem 5
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:
DIRECT MATERIALS
Cost
Units
Cost
Direct Materials
Behavior
per Case
per Unit
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
Cost
Time
Labor Rate
Direct Labor
Department
ehavior
per Case
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
2. $55.60 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:
Month
Case Production
Utility Total Cost
January
500
$600
February
800
660
March
1,200
740
April
1,100
720
May
950
June
690
025
705
Instructions
1. Determine the fixed and variable portions of the utility cost using the high-low method.
2. Determine the 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.

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Contribution.jpg

1. Calculation of Fixed portion and variable portion of Utilities Cost
Variable Cost per unit =
Mixed Cost at highest level activity - Mixed Cost at Lowest level Activity
Highest level activity -...

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