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.		$5.40
Sugar	7 lbs.		11 lbs.		0.60
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	5,300 cases		11,800 cases
Standard labor rate	$14.00 per hr.		$14.00 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)	5,000		12,300
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$5.50		119,400
Sugar	0.55		166,000
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$13.60 per hr.		1,820
Light chocolate	14.40 per hr.		6,300

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

ACCT 101B - CH 23 EXAMPLE 2

Answer 1

Direct Material Price Variance
	Cocoa	Sugar	Total
Actual Price	$         5.500	$                0.55
Standard Price	$           5.40	$                0.60
Difference	$         0.100	$              -0.05
Actual Quantity (Units)	119400	166000
Direct Material Price Variance	$ 11,940.00	$       -8,300.00	$      3,640.00
	Unfavorable	Favorable	Unfavorable
	Dark	Light	Total Standard Quantity
Cocoa	45000	73800	118800
Sugar	35000	135300	170300
Direct Material Qunatity Variance
	Cocoa	Sugar	Total
Actual Quantity	119400	166000
Standard Quantity	118800	170300
Difference	600	-4300
Standard Price	$           5.40	$                0.60
Direct Material Qunatity Variance	$    3,240.00	$       -2,580.00	$         660.00
	Unfavorable	Favorable	Unfavorable
Direct Labor Rate Variance
	Dark	Light	Total
Actual Rate	$         13.60	$              14.40
Standard Rate	$         14.00	$              14.00
Difference	$          -0.40	$                0.40
Actual Hours	1820	6300
Direct Labor Rate Variance	$     -728.00	$        2,520.00	$      1,792.00
	Favorable	Unfavorable	Unfavorable
Direct Labor Time Variance
	Dark	Light	Total
Actual Hours	1820	6300
Standard Hours	2000	6150
Difference	-180	150
Standard Rate	$         14.00	$              14.00
Direct Labor Time Variance	$ -2,520.00	$        2,100.00	$        -420.00
	Favorable	Unfavorable	Favorable

a.	Direct materials price variance	$        3,640.00	U
	Direct materials quantity variance	$           660.00	U
	Total direct materials cost variance	$        4,300.00	U
b.	Direct labor rate variance	$        1,792.00	U
	Direct labor time variance	$          -420.00	F
	Total direct labor cost variance	$        1,372.00	U