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:
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:
1. Determine the fixed and variable portion of the utility cost using the high-low method.
2. Determine the contribution margin per case. Enter your answer to the nearest cent.
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.
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:
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.
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)?