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 Behavior Units per Case Cost 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
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

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:

2016 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:
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.

August Budgets:
During July of the current year, the management of Genuine Spice Inc. asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,500 cases at $100 per case for August. Inventory planning information is provided as follows:

Finished Goods Inventory:
Cases Cost
Estimated finished goods inventory, August 1, 2016 300 $12,000
Desired finished goods inventory, August 31, 2016 175 7,000
Materials Inventory:
Cream Base Oils Bottles
(ozs.) (ozs.) (bottles)
Estimated materials inventory, August 1, 2016 250 290 600
Desired materials inventory, August 31, 2016 1,000 360 240

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.
Required:
5. Prepare the August production budget.*
6. Prepare the August direct materials purchases budget.*
7. Prepare the August direct labor budget. Round the hours required for production to the nearest hour.*
8. Prepare the August factory overhead budget. If an amount box 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 selling expenses.*
* Enter all amounts as positive numbers.