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.		$4.20
Sugar	7 lbs.		11 lbs.		0.60
Standard labor time	0.3 hr.		0.4 hr.

	Dark Chocolate		Light Chocolate
Planned production	4,400 cases		13,500 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)	4,200		14,000
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$4.30		122,400
Sugar	0.55		178,800
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$12.50 per hr.		1,150
Light chocolate	13.50 per hr.		5,740

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	$	Favorable
	Total direct materials cost variance	$	Unfavorable
b.	Direct labor rate variance	$	Unfavorable
	Direct labor time variance	$	Unfavorable
	Total direct labor cost variance	$	Unfavorable

Answer 1

a.)
Direct materials price variance =	(AP -SP) * Actual quantity purchased
Direct materials price variance =
COCOA	(4.30-4.20) * 122400
SUGAR	(0.55-0.60) * 178800
Direct materials price variance =
COCOA	$                                              12,240.00	Unfavourable
SUGAR	$                                               -8,940.00	Favourable
Direct materials price variance =	$                                                3,300.00	Unfavourable
Direct materials quantity variance =	(AQ - SQ) * SP
Direct materials quantity variance =
COCOA	(122400-((4200*9)+(14000*6))) * 4.20
SUGAR	(178800-((4200*7)+(14000*11))) * 0.60
Direct materials quantity variance =
COCOA	2520	Unfavourable
SUGAR	-2760	Favourable
Direct materials quantity variance =	-240	Favourable
Total direct materials cost variance	$                                                3,060.00	Unfavourable
b.)
Direct labor rate variance =	(AR-SR) * AH
Direct labor rate variance =
DARK CHOCLATE	(12.50-13) * 1150
LIGHT CHOCLATE	(13.50-13) * 5740
Direct labor rate variance =
DARK CHOCLATE	-575	Favourable
LIGHT CHOCLATE	2870	Unfavourable
Direct labor rate variance =	2295	Unfavourable
Direct labor time variance=	(AH - SH) * SR
Direct labor time variance=
DARK CHOCLATE	(1150-0.30*4200) * 13
LIGHT CHOCLATE	(5740-0.40*14000) * 13
Direct labor time variance=
DARK CHOCLATE	-1430	Favourable
LIGHT CHOCLATE	1820	Unfavourable
Direct labor time variance=	390	Unfavourable
Total direct labor cost variance =	2685	Unfavourable

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