Natural Fragrance, Inc., began operations on January 1, 2012. The company produces a hand and body lotion in an eight-ounce bottle called Eternal Beauty. The lotion is sold wholesale in 12-bottle cases for $80 per case. There is a selling commission of $16 per case. The January direct materials, direct labor, and factory overhead costs are as follows:

Make a workbook in excel and apply the worksheets within it.

Spreadsheet One: Break-Even Analysis

Determine a fixed and variable portion of a utility cost using the high-low method.

Determine a contribution margin

Determine a fix cost

Determine a break-even number

Spreadsheet Two: Budgets

Include a production budget

Include a direct materials purchase budget

Include a direct labor budget

Include a factory overhead budget

Include a budgeted income statement

Spreadsheet Three: Variance Analysis

Determine a direct material price and quantity variances

Determine a direct labor rate and time variances

Determine a factory overhead controllable variance

Determine a factory overhead volume variance

The software (excel workbook) should be attractive and user friendly.

See the following for the work information to complete it.


Cost Behavior Units per Case Cost per Unit Direct Materials Cost per Case

Cream base Variable 72 ozs. $0.015 $ 1.08

Natural oils Variable 24 ozs. 0.250 6.00

Bottle (8-oz.) Variable 12 bottles 0.400 4.80



Department Cost Behavior Time per Case Labor Rate per Hour Direct Labor Cost per Case

Mixing Variable 16.8 min. $15.00 $4.20

Filling Variable 4.2 12.00 0.84

21.0 min. $5.04


Cost Behavior Total Cost

Utilities Mixed $ 230

Facility lease Fixed 12,043

Equipment depreciation Fixed 3,600

Supplies Fixed 600


Part A Break-Even Analysis

The management of Natural Fragrance, 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:

2012 Case Production Utility Total Cost

January 300 $230

February 600 263

March 1,000 300

April 900 292

May 750 280

June 825 285


1. Determine the fixed and variable portion 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.

Part B August Budgets

During July of the current year, the management of Natural Fragrance, Inc., asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,300 cases at $80 per case for August. Inventory planning information is provided as follows:

Finished Goods Inventory:

Cases Cost

Estimated finished goods inventory, August 1, 2012 200 $6,000

Desired finished goods inventory, August 31, 2012 100 3,000

Materials Inventory:

Cream Base(ozs.) Oils(ozs.) Bottles (bottles)

Estimated materials inventory, August 1, 2012 200 240 500

Desired materials inventory, August 31, 2012 800 300 200

There was negligible work in process inventory assumed for either the beginning or end of the month; thus, none was assumed. In addition, there was no change in the cost per unit or estimated units per case operating data from January.


5. Prepare the August production budget.

6. Prepare the August direct materials purchases budget.

7. Prepare the August direct labor budget.

8. Prepare the August factory overhead budget.

9. Prepare the August budgeted income statement, including selling expenses.

Part C August Variance Analysis

During September of the current year, the controller was asked to perform variance analyses for August. The January operating data provided the standard prices, rates, times, and quantities per case. There were 1,300 actual cases produced during August, which was 100 more cases than planned at the beginning of the month. Actual data for August were as follows:

Actual Direct Materials Actual Direct Materials

Price per Unit Quantity per Case

Cream base $0.014 per oz. 74 ozs.

Natural oils $0.27 per oz. 26 ozs.

Bottle (8-oz.) $0.35 per bottle 12.6 bottles

Actual Direct Labor Rate Actual Direct Labor Time per Case

Mixing $15.20 16.20 min.

Filling 11.70 4.80 min.

Actual variable overhead $162.00

Normal volume 1,350 cases

The prices of the materials were different than standard due to fluctuations in market prices. The standard quantity of materials used per case was an ideal standard. The Mixing Department used a higher grade labor classification during the month, thus causing the actual labor rate to exceed standard. The Filling Department used a lower grade labor classification during the month, thus causing the actual labor rate to be less than standard.


10. Determine and interpret the direct materials price and quantity variances for the three materials.

11. Determine and interpret the direct labor rate and time variances for the two departments.

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 in the calculations for

parts (10) and (11) based on the actual 1,300-case production volume rather than

the planned 1,200 cases of production used in the budgets for parts (6) and (7)?