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	12 lbs.		9 lbs.		$4.30
Sugar	10 lbs.		14 lbs.		0.60
Standard labor time	0.3 hr.		0.4 hr.

	Dark Chocolate		Light Chocolate
Planned production	5,000 cases		13,800 cases
Standard labor rate	$14.50 per hr.		$14.50 per hr.

I Love My Chocolate Company 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)	4,800		14,400
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$4.40		188,100
Sugar	0.55		243,400
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$14.20 per hr.		1,310
Light chocolate	14.80 per hr.		5,900

Required:

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

     a. Direct materials price variance, direct materials quantity variance, and total variance.

     b. 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.

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

2. The variance analyses should be based on the standard  amounts at actual  volumes. The budget must flex with the volume changes. If the actual  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 actual  production. In this way, spending from volume changes can be separated from efficiency and price variances.

Answer 1

Direct Material Price variance = (Actual price - Standard Price) x actual quantity
Direct Material Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
Total Direct Material Variance = Direct Material Price variance + Direct Material Quantity Variance

Direct Labor rate variance = (Actual Rate - Standard Rate) x actual hours
Direct Labor Efficiency Variance = (Actual hours - Standard hours) x Standard Rate
Total Direct Labor Variance = Direct Labor Rate variance + Direct Labor Efficiency Variance

Based on Planned Production

Direct Material Price Variance
	Cocoa	Sugar	Total
Actual Price	$              4.40	$              0.55
Standard Price	$              4.30	$              0.60
Difference	$           0.100	$            (0.05)
Actual Quantity	188100	243400
Direct Material Price Variance	$   18,810.00	$ (12,170.00)	$     6,640.00
	Unfavorable	Favorable	Unfavorable
Direct Material Quantity Variance
	Cocoa	Sugar	Total
Actual Quantity	188100	243400
Standard Quantity	184200	243200
Difference	3900	200
Standard Price	$              4.30	$              0.60
Direct Material Quantity Variance	$   16,770.00	$         120.00	$   16,890.00
	Unfavorable	Unfavorable	Unfavorable
Total Direct Material Variance			$   23,530.00
			Unfavorable
Direct labor rate Variance
	Dark	Light	Total
Actual Rate	$           14.20	$            14.80
Standard Rate	$           14.50	$            14.50
Difference	$           (0.30)	$              0.30
Actual time	$     1,310.00	$      5,900.00
Direct labor rate Variance	$       (393.00)	$      1,770.00	$     1,377.00
	Favorable	Unfavorable	Unfavorable
Direct labor time Variance
	Dark	Light	Total
Actual hours	1310	5900
Standard hours	1500	5520
Difference	-190	380
Standard rate	$           14.50	$            14.50
Direct labor time Variance	$   (2,755.00)	$      5,510.00	$     2,755.00
	Favorable	Unfavorable	Unfavorable
Total Direct Labor Variance			$     4,132.00
			Unfavorable

Standard Quantity
Cocoa =5000*12+13800*9
Sugar =5000*10+13800*14

Standard Hours
Dark Chocolate =5000*0.3
Light Chocolate =13800*0.4

Based on Actual Results/Production

Direct Material Price Variance
	Cocoa	Sugar	Total
Actual Price	$              4.40	$              0.55
Standard Price	$              4.30	$              0.60
Difference	$           0.100	$            (0.05)
Actual Quantity	188100	243400
Direct Material Price Variance	$   18,810.00	$ (12,170.00)	$     6,640.00
	Unfavorable	Favorable	Unfavorable
Direct Material Quantity Variance
	Cocoa	Sugar	Total
Actual Quantity	188100	243400
Standard Quantity	187200	249600
Difference	900	-6200
Standard Price	$              4.30	$              0.60
Direct Material Quantity Variance	$     3,870.00	$   (3,720.00)	$         150.00
	Unfavorable	Favorable	Unfavorable
Total Direct Material Variance			$     6,790.00
			Unfavorable
Direct labor rate Variance
	Dark	Light	Total
Actual Rate	$           14.20	$            14.80
Standard Rate	$           14.50	$            14.50
Difference	$           (0.30)	$              0.30
Actual time	$     1,310.00	$      5,900.00
Direct labor rate Variance	$       (393.00)	$      1,770.00	$     1,377.00
	Favorable	Unfavorable	Unfavorable
Direct labor time Variance
	Dark	Light	Total
Actual hours	1310	5900
Standard hours	1440	5760
Difference	-130	140
Standard rate	$           14.50	$            14.50
Direct labor time Variance	$   (1,885.00)	$      2,030.00	$         145.00
	Favorable	Unfavorable	Unfavorable
Total Direct Labor Variance			$     1,522.00
			Unfavorable

Standard Quantity
Cocoa =4800*12+14400*9
Sugar =4800*10+14400*14

Standard Hours
Dark Chocolate =4800*0.3
Light Chocolate =14400*0.4