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	9 lbs.		6 lbs.		$5.20
Sugar	7 lbs.		11 lbs.		0.60
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	4,700 cases		10,400 cases
Standard labor rate	$13.00 per hr.		$13.00 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)	4,500		10,800
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$5.30		105,800
Sugar	0.55		146,500
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$12.70 per hr.		1,640
Light chocolate	13.30 per hr.		5,530

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	$	Favorable
	Total direct labor cost variance	$	Unfavorable

Answer 1

a.

Direct material price variance = Actual quantity*Standard price - Actual quantity*Actual price

Cocoa = 105,800*$5.2 - 105,800*$5.3

Cocoa = $550,160 - 560,740 = $10,580 Unfavorable

Sugar = 146,500*$0.6 - 146,500*$0.55

Sugar = $87,900 - 80,575 = $7,325 Favorable

Total direct material price variance = $10,580 U + 7,325 F = $3,255 Unfavorable

Direct material quantity variance = Standard quantity*Standard price -  Actual quantity*Standard price

Standard quantity :

Cocoa = 4,500*9 + 10,800*6 = 105,300

Sugar = 4,500*7 + 10,800*11 = 150,300

Direct material quantity variance :

Cocoa = 105,300*$5.2 - 105,800*$5.2

Cocoa = $547,560 - 550,160 = $2,600 Unfavorable

Sugar = 150,300*$0.6 - 146,500*$0.6

Sugar = $90,180 - 87,900 = $2,280 Favorable

Total direct material quantity variance = $2,600 U + 2,280 F = $320 Unfavorable

Total direct material cost variance = Total direct material quantity variance + Total direct material price variance

Total direct material cost variance = $320 U + 3,255 U = $3,575 Unfavorable

b

Direct labor rate variance = Actual hours*Standard rate - Actual hours*Actual rate

Dark chocolate = 1,640*$13 - 1,640*$12.7

Dark chocolate = $21,320 - 20,828 = $492 Favorable

Light chocolate = 5,530*$13 - 5,530*$13.3

Light chocolate = $71,890 - 73,549 = $1,659 Unfavorable

Total direct labor rate variance = $492 F + 1,659 U = $1,167 Unfavorable

Direct labor time variance = Standard hours*Standard rate - Actual hours*Standard rate

Standard hours:

Dark chocolate = 4,500*0.4 = 1,800 hours

Light chocolate = 10,800*0.5 = 5,400 hours

Direct labor time variance :

Dark chocolate =  1,800*$13 - 1,640*$13

Dark chocolate = $23,400 - 21,320 = $2,080 Favorable

Light chocolate = 5,400*$13 - 5,530*$13

Light chocolate = $70,200 - 71,890 = $1,690 Unfavorable

Total direct labor time variance = $2,080 F + 1,690 U = $390 Favorable

Total direct labor cost variance = Total direct labor time variance + Total direct labor rate variance

Total direct labor cost variance = $390 F + 1,167 U = $777 Unfavorable