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.		$5.20
Sugar	7 lbs.		11 lbs.		0.60
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	4,500 cases		10,500 cases
Standard labor rate	$14.50 per hr.		$14.50 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)	4,300		10,900
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$5.30		104,600
Sugar	0.55		146,300
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$14.00 per hr.		1,570
Light chocolate	15.00 per hr.		5,590

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	$	(Favorable/Unfavorable)
	Direct materials quantity variance	$	(Favorable/Unfavorable)
	Total direct materials cost variance	$	(Favorable/Unfavorable)
b.	Direct labor rate variance	$	(Favorable/Unfavorable)
	Direct labor time variance	$	(Favorable/Unfavorable)
	Total direct labor cost variance	$	(Favorable/Unfavorable)

Answer 1

	Direct Material Price Variance
		Cocoa	Sugar	Total
	Actual Price	$           5.30	$                0.55
	Standard Price	$           5.20	$                0.60
	Difference	$           0.10	$              -0.05
	Actual Quantity (Units)	104600	146300
	Direct Material Price Variance	$ 10,460.00	$       -7,315.00	$      3,145.00
		Unfavorable	Favorable	Unfavorable
		Dark	Light	Total Standard Quantity
	Cocoa	40500	63000	103500
	Sugar	31500	115500	147000
	Direct Material Qunatity Variance
		Cocoa	Sugar	Total
	Actual Quantity	104600	146300
	Standard Quantity	103500	147000
	Difference	1100	-700
	Standard Price	$           5.20	$                0.60
	Direct Material Qunatity Variance	$    5,720.00	$          -420.00	$      5,300.00
		Unfavorable	Favorable	Unfavorable
	Direct Labor Rate Variance
		Dark	Light	Total
	Actual Rate	$         14.00	$              15.00
	Standard Rate	$         14.50	$              14.50
	Difference	$          -0.50	$                0.50
	Actual Hours	1570	5590
	Direct Labor Rate Variance	$     -785.00	$        2,795.00	$      2,010.00
		Favorable	Unfavorable	Unfavorable
	Direct Labor Time Variance
		Dark	Light	Total
	Actual Hours	1570	5590
	Standard Hours	1800	5250
	Difference	-230	340
	Standard Rate	$         14.50	$              14.50
	Direct Labor Time Variance	$ -3,335.00	$        4,930.00	$      1,595.00
		Favorable	Unfavorable	Unfavorable
a.	Direct materials price variance	$    3,145.00	U
	Direct materials quantity variance	$    5,300.00	U
	Total direct materials cost variance	$    8,445.00	U
b.	Direct labor rate variance	$    2,010.00	U
	Direct labor time variance	$    1,595.00	U
	Total direct labor cost variance	$    3,605.00	U