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.		$5.40
Sugar	10 lbs.		14 lbs.		0.60
Standard labor time	0.3 hr.		0.4 hr.

	Dark Chocolate		Light Chocolate
Planned production	5,300 cases		10,800 cases
Standard labor rate	$15.00 per hr.		$15.00 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)	5,000		11,200
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$5.50		161,600
Sugar	0.55		201,600
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$14.70 per hr.		1,370
Light chocolate	15.30 per hr.		4,590

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	$

Answer 1

Direct Material Price Variance Cocoa = (Actual Price - Standard Price) x Actual quantity purchased

Direct Material Price Variance Cocoa = ($5.50- $5.40) x 161,600 = $16,160 U

Direct Material Price Variance Sugar = (Actual Price - Standard Price) x Actual quantity purchased

Direct Material Price Variance Sugar = ($0.55- $0.60) x 201,600 = $10,080 F

Total Direct Material Price Variance = $16,160 U + $10,080 F = $6,080 U

Direct Material Quantity Variance Cocoa = (Actual Quantity Used - Standard Quantity Allowed) x Standard Price

Direct Material Quantity Variance Cocoa = (161,600 – [(12 lbs x 5,000 cases) + (9lbs x 11,200) x $5.40 = $4,320 U

Direct Material Quantity Variance Sugar = (Actual Quantity Used - Standard Quantity Allowed) x Standard Price

Direct Material Quantity Variance Sugar = (201,600 – [(10 lbs x 5,000 cases) + (14lbs x 11,200) x $0.60 = $3,120 F

Total Direct Material Quantity Variance = $4,320 U + $3,120 F = $1200 U

Direct Labour Rate Variance Dark Chocolate = (Actual rate- Standard rate) x Actual hours

Direct Labour Rate Variance Dark Chocolate = ($14.70 - $15.00) x 1,370 = $411 F

Direct Labour Rate Variance Light Chocolate = (Actual rate- Standard rate) x Actual hours

Direct Labour Rate Variance Light Chocolate = ($15.30 - $15.00) x 4,590 = $1,377 U

Total Labour Rate Variance = $411 F + $1,377 U = $966 U

Direct Labour Time Variance Dark Chocolate = (Actual hours - Standard Hours allowed) x Standard rate

Direct Labour Time Variance Dark Chocolate = (1,370 – (0.3hrs x 5,000 cases) x $15.00= $1,950 F

Direct Labour Time Variance Light Chocolate = (Actual hours - Standard Hours allowed) x Standard rate

Direct Labour Time Variance Light Chocolate = (4,590 – (0.4hrs x 11,200 cases) x $15.00 = $1,650 U

Total Labour Time Variance = $1,950 F + $1,650 U = $300 F

a.	Direct materials price variance	$	6,080	Unfavorable
	Direct materials quantity variance	$	1,200	Unfavorable
	Total direct materials cost variance	$	7,280	Unfavorable
b.	Direct labor rate variance	$	966	Unfavorable
	Direct labor time variance	$	300	Favorable
	Total direct labor cost variance	$	666	Unfavorable