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.		$5.00
Sugar	10 lbs.		14 lbs.		0.60
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	5,400 cases		12,400 cases
Standard labor rate	$14.00 per hr.		$14.00 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)	5,100		12,900
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$5.10		178,200
Sugar	0.55		225,800
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$13.50 per hr.		1,860
Light chocolate	14.50 per hr.		6,610

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

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.

The prices that I put are wrong please fix.

Direct Materials, Direct Labor, and Factory Overhead Cost Variance Analysis

Mackinaw Inc. processes a base chemical into plastic. Standard costs and actual costs for direct materials, direct labor, and factory overhead incurred for the manufacture of 70,000 units of product were as follows:

	Standard Costs		Actual Costs
Direct materials	231,000 lbs. at $5.60		228,700 lbs. at $5.50
Direct labor	17,500 hrs. at $16.90		17,900 hrs. at $17.10
Factory overhead	Rates per direct labor hr.,
	based on 100% of normal
	capacity of 18,260 direct
	labor hrs.:
		Variable cost, $3.00	$51,980 variable cost
		Fixed cost, $4.70	$85,822 fixed cost

Each unit requires 0.25 hour of direct labor.

Required:

a. Determine the direct materials price variance, direct materials quantity variance, and total direct materials cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Direct Materials Price Variance	$	Favorable
Direct Materials Quantity Variance	$	Favorable
Total Direct Materials Cost Variance	$	Favorable

b. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Direct Labor Rate Variance	$	Unfavorable
Direct Labor Time Variance	$	Unfavorable
Total Direct Labor Cost Variance	$	Unfavorable

c. Determine the variable factory overhead controllable variance, fixed factory overhead volume variance, and total factory overhead cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number.

Variable factory overhead controllable variance	$	Favorable
Fixed factory overhead volume variance	$	Unfavorable
Total factory overhead cost variance	$	Unfavorable

Answer 1

As per policy, only the first question is being answered. Please ask the remaining questions seperately.

Cocoa

calculation of direct material price variance:

= (Standard price per unit of material - Actual price per unit of material) × Actual quantity

= ($5.00/ib. - $5.10/ib ) × 178200 ib. = $17820 U

Calculation of direct material quantity variance

=(standard quantity of material required for actual production - actual quantity used) × Standard price per unit

((12 ibs. X 5100 Unit)+(9 ibs X 12900)-178200)X $5.00= $4500 U

For Sugar

calculation of direct material price variance:

= (Standard price per unit of material - Actual price per unit of material) × Actual quantity

= ($0.60 - $0.55 ) × 225800 = $ 11290 F

Calculation of direct material quantity variance

=(standard quantity of material required for actual production - actual quantity used) × Standard price per unit

((10 ibs. X 5100 Unit)+(14 ibs X 12900)-225800)X $0.60= $ 3480 F

Total Material Price Variance= $17820 U + $11290 F= $6530 U

Total Material Quantity Variance= $4500 U+ $3480 F=$1020 U

Total Material Cost Variance= $6530 U+ $1020 U= $7550 U

Dark Choclate

Calculation of direct labor rate variance

= (Standard direct labor rate per hour - actual direct labor rate per hour) × Actual hours used

= ($14/hour - $13.50/hour) × 1860 Hours= $930 F

Calculation of direct labor efficiency variance:

= (standard hours required for actual production - actual hours used) × standard RAte

= (0.40 Hour × 5100 Unit - 1860) × $14 = $2520 F

Light Choclate

Calculation of direct labor rate variance

= (Standard direct labor rate per hour - actual direct labor rate per hour) × Actual hours used

= ($14/hour - $14.40/hour) × 6610 Hours= $3305 U

Calculation of direct labor efficiency variance:

= (standard hours required for actual production - actual hours used) × standard overhead recovery rate

= (0.50 Hour × 12900 Unit - 6610) × $14 = $2240 U

Total LAbour Rate Variance= $930 F+ $3305 U= $2375 U

Total Labour Efficiency Variance= $2520 F + $2240 U =$280 F

Total Labour Cost Variance = $2375 U+ $280F=$2095 U

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.