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Essence of Persia, Inc., began operations on January 1, 2010. 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:

Part B- August Budgets

During July of the current year, the management of Essence of Persia, Inc., asked the controller to prepare August manufacturing and income statement budgets. Demand was expected to be 1,400 cases at $80 per case for August. Inventory planning information is provided as follows:
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. Enter all amounts as positive numbers.
ESSENCE OF PERSIA, INC.
Production Budget
For the Month Ended August 31, 2010
Cases
Expected cases to be sold __________
Plus desired ending inventory __________
Total __________

Less estimated beginning inventory __________
Total units to be produced __________

6. Prepare the August direct materials purchases budget. Enter the unit price as dollars and cents but carry out to three decimal places. For example, enter .2357 as 0.236 and enter 3.61 as 3.610. Enter all amounts as positive numbers.
ESSENCE OF PERSIA, INC.
Direct Materials Purchases Budget
For the Month Ended August 31, 2010 Natural
Cream Base Oils Bottles Total
(ozs.) (ozs.) (bottles)

Units required for production
Plus desired ending inventory
Less estimated beginning inventory
Direct materials to be purchased
Unit price X X X
Total direct materials to be purchased

7. Prepare the August direct labor budget. For hours required, round to nearest whole hour. For hourly rate, enter the amount as rounded to nearest whole dollar.
ESSENCE OF PERSIA, INC.
Direct Labor Budget
For the Month Ended August 31, 2010
Mixing Filling Total
Hours required for production:
Hand and body lotion
Hourly rate X X
Total direct labor cost
8. Prepare the August factory overhead budget. If an amount box does not require an entry, leave it blank.
ESSENCE OF PERSIA, INC.
Factory Overhead Budget
For the Month Ended August 31, 2010
Factory overhead Fixed Variable Total
Utilities
Facility Lease
Equipment Depreciation
Supplies
Total

9. On your own paper, a spreadsheet or working papers, prepare the August budgeted income statement, including selling expenses. Provide the following amounts:
Sales: $
Cost of direct materials for production: $
Cost of goods sold: $
Gross profit: $
Selling expenses: $
Income before income tax: $
Comprehensive Problem
Part C:

Note: This section is a continuation from Parts A and B of the comprehensive problem. Be sure you have completed Parts A and B before attempting Part C. You may have to refer back to data presented in Parts A and B as well as use answers from those parts when completing this section.

Essence of Persia, Inc., began operations on January 1, 2010. 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:
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 1,500 actual cases produced during August, which was 200 more cases than planned at the beginning of the month. Actual data for August were as follows:

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.