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Flexible Budgeting and Variance Analysis I Love My Chocolate Company makes dark chocolate and light chocolate....

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 11 lbs. 8 lbs. $4.20
Sugar 9 lbs. 13 lbs. 0.60
Standard labor time 0.3 hr. 0.4 hr.
Dark Chocolate Light Chocolate
Planned production 3,800 cases 11,600 cases
Standard labor rate $16.50 per hr. $16.50 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) 3,600 12,100
     Actual Price per Pound      Actual Pounds Purchased and Used
Cocoa $4.30 137,100
Sugar 0.55 185,000
Actual Labor Rate      Actual Labor Hours Used
Dark chocolate $16.20 per hr. 980
Light chocolate 16.80 per hr. 4,960

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 $
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.

Solutions

Expert Solution

a. Direct materials price variance $          4,460.00 U
Direct materials quantity variance $             120.00 U
Total direct materials cost variance $          4,580.00 U
b. Direct labor rate variance $          1,194.00 U
Direct labor time variance $             330.00 U
Total direct labor cost variance $          1,524.00 U
Direct Material Price Variance
Cocoa Sugar Total
Actual Price $                  4.30 $                  0.55
Standard Price $                  4.20 $                  0.60
Difference $                  0.10 $                -0.05
Actual Quantity (Units) 137100 185000
Direct Material Price Variance $        13,710.00 $         -9,250.00 $         4,460.00
Unfavorable Favorable Unfavorable
Dark Light Total Standard Quantity
Cocoa 39600 96800 136400
Sugar 32400 157300 189700
Direct Material Qunatity Variance
Cocoa Sugar Total
Actual Quantity 137100 185000
Standard Quantity 136400 189700
Difference 700 -4700
Standard Price $                  4.20 $                  0.60
Direct Material Qunatity Variance $          2,940.00 $         -2,820.00 $            120.00
Unfavorable Favorable Unfavorable
Direct Labor Rate Variance
Dark Light Total
Actual Rate $               16.20 $                16.80
Standard Rate $               16.50 $                16.50
Difference $                -0.30 $                  0.30
Actual Hours 980 4960
Direct Labor Rate Variance $            -294.00 $          1,488.00 $         1,194.00
Favorable Unfavorable Unfavorable
Direct Labor Time Variance
Dark Light Total
Actual Hours 980 4960
Standard Hours 1080 4840
Difference -100 120
Standard Rate $               16.50 $                16.50
Direct Labor Time Variance $        -1,650.00 $          1,980.00 $            330.00
Favorable Unfavorable 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.


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