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 lb.		9 lb.		$4.3
Sugar	10 lb.		14 lb.		0.6
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	5,300 cases		10,100 cases
Standard labor rate	$13.5 per hr.		$13.5 per hr.

I Love My Chocolate 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		10,500
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$4.4		155,300
Sugar	0.55		192,100
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$13.1 per hr.		1,820
Light chocolate	13.9 per hr.		5,380

Required:

Prepare the following variance analyses for both chocolates and total, based on the actual results and production levels at the end of the budget year:

1. Direct materials price variance, direct materials quantity variance, and total variance.
2. 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. If there is no variance, enter a zero.

a.	Direct materials price variance	$fill in the blank 1
	Direct materials quantity variance	$fill in the blank 3
	Total direct materials cost variance	$fill in the blank 5
b.	Direct labor rate variance	$fill in the blank 7
	Direct labor time variance	$fill in the blank 9
	Total direct labor cost variance	$fill in the blank 11

Answer 1

Equations

1.Direct Material Price Variance = ( Standard price - Actual Price) * Actual Quantity

2.Material Quantity variance = ( Standard Quantity - Actual Quantity) * Standard price

3.Direct material variance = ( Standard Quantity * Standard price) - (Actual Quantity * Actual price) or Direct Material Price Variance - Direct material quantity variance

4.Direct Labor Rate variance = (Standard rate - Actual Rate) * Actual Hours

5.Direct labor Time variance = ( Standard hours - Actual Hours) * Standard rate

6.Direct labor variance = ( Standard hours * Standard rate) - (Actual hours * Actual rate) or Direct labor rate variance - Direct labor time variance

Direct Material Price Variance
	Cocoa	Sugar	Total
Actual Price	$ 4.40	$                0.55
Standard Price	$ 4.30	$                0.60
Difference	$              0.10	$               -0.05
Actual Quantity (Units)	155,300	192,100
Direct Material Price Variance	$    15,530.00	$       -9,605.00	$        5,925.00
	Unfavorable	Favorable	Unfavorable

	Dark	Light	Total Standard Quantity
Cocoa	60,000	94,500	154,500
Sugar	50,000	147,000	197,000
Direct Material Quantity Variance
	Cocoa	Sugar	Total
Actual Quantity	155,300	192,100
Standard Quantity	154,500	194,400
Difference	800	-2,300
Standard Price	$ 4.30	$                0.60
Direct Material Qunatity Variance	$ 3,440.00	$       -1,380.00	$ 2,060.00
	Unfavorable	Unfavorable	Unfavorable

Direct Labor Rate Variance
	Dark	Light	Total
Actual Rate	$            13.10	$              13.90
Standard Rate	$            13.50	$              13.50
Difference	$             -0.40	$                0.40
Actual Hours	1,820	5,380
Direct Labor Rate Variance	$        -728.00	$ 2,152.00	$        1,424.00
	Favorable	Unfavorable	Unfavorable

Direct Labor Time Variance
	Dark	Light	Total
Actual Hours	1,820	5,380
Standard Hours	2,120	5,050
Difference	-300	330
Standard Rate	$            13.50	$              13.50
Direct Labor Time Variance	$     -4,050.00	$ 4,455.00	$          -405.00
	Favorable	Unfavorable	Favorable

a.	Direct materials price variance	$      5,925.00	U
	Direct materials quantity variance	$ 2,060.00	U
	Total direct materials cost variance	$      7,985.00	U
b.	Direct labor rate variance	$      1,424.00	U
	Direct labor time variance	$        -405.00	F
	Total direct labor cost variance	$ 1,019.00	U