Question

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.		$4.20
Sugar	7 lbs.		11 lbs.		0.60
Standard labor time	0.3 hr.		0.4 hr.

	Dark Chocolate		Light Chocolate
Planned production	4,600 cases		12,500 cases
Standard labor rate	$16.00 per hr.		$16.00 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)	4,400		13,000
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$4.30		118,200
Sugar	0.55		169,500
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$15.60 per hr.		1,200
Light chocolate	16.40 per hr.		5,330

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

Answer 1

1.

a.	Direct material price variance	$                3,345	Unfavourable
	Direct material quantity variance	$                      60	Favorable
	Total direct materials cost variance	$                3,285	Unfavourable
b.	Direct labor rate variance	$                1,652	Unfavourable
	Direct labor time variance	$                    160	Unfavourable
	Total direct labor cost variance	$                1,812	Unfavourable

Workings:

1a.

Direct Material Price Variance	Cocoa	Sugar	Total
Actual pound purchased	118200	169500
Standard price	4.2	0.6
Actual purchase at standard price	496440	101700
Actual price	4.3	0.55
Actual purchase at actual price	508260	93225
Direct material price variance	11820	-8475	3345	Unfavourable

Direct Material Quantity Variance	Dark chocolate		Light chocolate		Total
	Cocoa	Sugar	Cocoa	Sugar	Cocoa	Sugar	Total
Standard rate					4.2	0.6
Actual pounds used					118200	169500
Actual usage at standard price					496440	101700
Standard usage allowed for actual production	39600	30800	78000	143000	117600	173800
	(4400 x 9)	(4400 x 7)	(13000 x 6)	(13000 x 11)	(39600 + 78000)	(30800 + 143000)
Standard usage at standard price					493920	104280
Direct material quantity variance					2520	-2580	-60	Favorable
Total direct materials cost variance	(3345-60)	3285	Unfavourable

1b.

Direct labor rate variance	Dark chocolate	Light chocolate
Actual direct labor hours	1200	5330
Standard rate	16	16
Actual labor cost at standard rate	19200	85280
Actual rate	15.60	16.40
Actual labor cost at actual rate	18720	87412
Total Direct labor rate variance	-480	2132	1652	Unfavourable
Direct labor time variance	Dark chocolate	Light chocolate
Standard rate	16	16
Actual direct labor hours	1200	5330
Actual labor cost at standard rate	19200	85280
Standard direct labor hours for actual production	1320	5200
	(4400 x 0.30)	(13000 x 0.40)
Standard labor cost at standard rate	21120	83200
Direct labor time variance	-1920	2080	160	Unfavourable
Total direct labor cost variance	(1652 + 160)	1812	Unfavourable