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	10 lbs.		7 lbs.		$5.00
Sugar	8 lbs.		12 lbs.		0.60
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	4,300 cases		10,600 cases
Standard labor rate	$15.50 per hr.		$15.50 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)	4,100		11,000
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$5.10		118,600
Sugar	0.55		160,700
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$15.10 per hr.		1,490
Light chocolate	15.90 per hr.		5,640

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

Cocoa

calculation of direct material price variance:

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

= ($5/ib. - $5.10/ib ) × 118600 ib. = $11860 U

Calculation of direct material quantity variance

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

((10 ibs. X 4100 Unit)+(7ibsX11000)-118600)X $5= $3000 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 ) × 160700 = $8035F

Calculation of direct material quantity variance

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

((8 ibs. X 4100 Unit)+(12 ibsX11000)-160700)X $0.60= $2460 F

Tototal Material Price Variance= $11860U+$8035 F= $3825U

Tototal Material Quantity Variance= $3000 U+ $2460 F=$540 U

Tototal Material Cost Variance= $3825U+ $540U= $4365U

Dark Choclate

Calculation of direct labor rate variance

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

= ($15.5/hour - $15.10/hour) × 1490 Hours= $596 F

Calculation of direct labor efficiency variance:

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

= (0.40 Hour × 4100 Unit - 1490) × $15.50 = $2325 F

Light Choclate

Calculation of direct labor rate variance

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

= ($15.50/hour - $15.90/hour) × 5640 Hours= $2256 U

Calculation of direct labor efficiency variance:

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

= (0.50 Hour × 11000 Unit - 5640) × $15.50 = $2170 U

Tototal LAbour Rate Variance= $596 F+ $2256 U= $1660U

Tototal Labour Efficiency Variance= $2325F+$2170 U=$155 F

Tototal Labour Cost Variance = $1660U+ $155F=$1505 U