Question

Flexible Budgeting and Variance Analysis

I Love My Chocolate Company makes dark chocolate and light chocolate. Both products require cocoa and sugar. The following planning information has been made available:

Standard Amount per Case
	Dark Chocolate		Light Chocolate		Standard Price per Pound
Cocoa	10 lb.		7 lb.		$4.9
Sugar	8 lb.		12 lb.		0.6
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	4,400 cases		13,300 cases
Standard labor rate	$15 per hr.		$15 per hr.

I Love My Chocolate does not expect there to be any beginning or ending inventories of cocoa or sugar. At the end of the budget year, I Love My Chocolate Company had the following actual results:

	Dark Chocolate		Light Chocolate
Actual production (cases)	4,200		13,800
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$5		139,300
Sugar	0.55		194,200
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$14.6 per hr.		1,530
Light chocolate	15.4 per hr.		7,070

Required:

Prepare the following variance analyses for both chocolates and total, based on the actual results and production levels at the end of the budget year:

1. Direct materials price variance, direct materials quantity variance, and total variance.
2. Direct labor rate variance, direct labor time variance, and total variance.

Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. If there is no variance, enter a zero.

a.	Direct materials price variance	$
	Direct materials quantity variance	$
	Total direct materials cost variance	$
b.	Direct labor rate variance	$
	Direct labor time variance	$
	Total direct labor cost variance	$

2. The variance analyses should be based on the   amounts at   volumes. The budget must flex with the volume changes. If the   volume is different from the planned volume, as it was in this case, then the budget used for performance evaluation should reflect the change in direct materials and direct labor that will be required for the   production. In this way, spending from volume changes can be separated from efficiency and price variances.

Answer 1

a)

	Cocoa		Sugar		Total
Price Variance
Actual Price	5.00		0.55
Standard Price	4.90		0.60
Variance	0.10		-              0.05
Actual Qty	139,300.00		194,200.00
Direct Materials Price Vairance	13,930.00	U	-      9,710.00	F	4,220.00	U
Quantity Variance
Actual quantity used	139,300.00		194,200.00
Standard quantity used	138,600.00		199,200.00
Variance	700.00		-      5,000.00
Standard price	4.90		0.60
Direct materials quantity variance	3,430.00	U	-      3,000.00	F	430.00	U
Total direct materials cost variance
Actual Cost	696,500.00		106,810.00
Standard Cost	679,140.00		119,520.00
Total direct materials cost variance	17,360.00	U	-   12,710.00	F	4,650.00	U

b)

	Dark Chocolate		Light Chocolate		Total
Rate Variance
Actual Rate	14.60		15.40
Standard Rate	15.00		15.00
Variance	-                        0.40		0.40
Actual time	1,530.00		7,070.00
Direct Labor Rate Vairance	-                   612.00	F	2,828.00	U	2,216.00	U
Time Variance
Actual Time	1,530.00		7,070.00
Standard Time	1,680.00		6,900.00
Variance	-                   150.00		170.00
Standard Rate	15.00		15.00
Direct Labor Time variance	-                2,250.00	F	2,550.00	U	300.00	U
Total direct labor cost variance
Actual Cost	22,338.00		108,878.00
Standard Cost	25,200.00		103,500.00
Total direct labor cost variance	-                2,862.00	F	5,378.00	U	2,516.00	U