Question

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I Love My Chocolate Company makes dark chocolate and light chocolate. Both products require cocoa and...

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. $4.40
Sugar 7 lbs. 11 lbs. 0.60
Standard labor time 0.3 hr. 0.4 hr.
Dark Chocolate Light Chocolate
Planned production 5,400 cases 12,500 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) 5,100 13,000
     Actual Price per Pound      Actual Pounds Purchased and Used
Cocoa $4.50 124,500
Sugar 0.55 174,200
Actual Labor Rate      Actual Labor Hours Used
Dark chocolate $14.10 per hr. 1,390
Light chocolate 14.90 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. If there is no variance, enter a zero.

a. Direct materials price variance $
Direct materials quantity variance $
Total direct materials cost variance $
b. Direct labor rate variance $
Direct labor time variance $
Total direct labor cost variance $

2. The variance analyses should be based on the amounts at volumes. The budget must flex with the volume changes. If the 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 production. In this way, spending from volume changes can be separated from efficiency and price variances.

Solutions

Expert Solution

1a)
Direct Materials Variance Cocoa Sugar Total
Price variance:
Actual price $4.50 $0.55
Standard price $4.40 $0.60
Variance $0.10 -$0.05
Actual quantity 124500 174200
Direct materials price variance $12,450.00 U -$8,710.00 F $3,740.00 U
Quantity variance:
Actual quantity used 124,500 174,200
Standard quantity used (Note 1) 123,900 178,700
Variance 600 -4500
Standard price $4.40 $0.60
Direct materials quantity variance $2,640.00 U -$2,700.00 F -$60.00 F
Total direct materials cost variance
Actual cost $560,250.00 $95,810.00
Standard cost $545,160.00 $107,220.00
Total direct materials cost variance $15,090.00 U -$11,410.00 F $3,680.00 U
Notes
1) Standard Quantity
(9 lbs. × 5,100 actual production of dark chocolate) + (6 lbs. ×13,000 actual production of light chocolate) 123,900
97,500 = (7 lbs. × 5100 actual production of dark chocolate) + (11 lbs. × 13000 actual production of light chocolate) 178,700
2) Actual Cost
$4.50 × 124,500 $560,250.00
$.55 × 174,200 $95,810.00
3) Standard Cost
$4.40 x 123,900 545,160
$.60 x 178,700 107,220
b.
Dark Light
Direct Labor Variance Chocolate Chocolate Total
Rate variance:
Actual rate $14.10 $14.90
Standard rate $14.50 $14.50
Variance -$0.40 $0.40
Actual time 1390 5330
Direct labor rate variance -$556.00 F $2,132.00 U $1,576.00 U
Time variance:
Actual time 1390 5330
Standard time 1530.00 5200.00
Variance -140 130
Standard rate $14.50 $14.50
Direct labor time variance -$2,030.00 F $1,885.00 U -$145.00 F
Total direct labor cost variance
Actual cost $19,599.00 $79,417.00
Standard cost $22,185.00 $75,400.00
Total direct labor cost variance -$2,586.00 F $4,017.00 U $1,431.00 U
Standard Rate
0.30 hr. × 5,100 actual production of dark chocolate 1530.00
0.40 hr. × 13,000 actual production of light chocolate 5200.00
Actual cost
1390 hrs. × $14.10 $19,599.00
5,330 hrs. × $14.90 $79,417.00
Standard Cost
1530 hrs. × $14.50 $22,185.00
5200 hrs. × $14.50 $75,400.00
2. The variance analyses should be based on the amounts at volumes. The budget must flex with the volume changes. If the 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 production. In this way, spending from volume changes can be separated from efficiency and price variances.

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