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 lbs.		9 lbs.		$4.40
Sugar	10 lbs.		14 lbs.		0.60
Standard labor time	0.3 hr.		0.4 hr.

	Dark Chocolate		Light Chocolate
Planned production	5,100 cases		13,100 cases
Standard labor rate	$13.00 per hr.		$13.00 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)	4,800		13,600
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$4.50		180,900
Sugar	0.55		232,400
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$12.50 per hr.		1,310
Light chocolate	13.50 per hr.		5,580

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

Answer 1

a.

Total Material Variance		6830	Unfavourable
Made up of :
Material Price Variance		6470	Unfavourable
Material Quantity Variance		360	Unfavourable

Working:

Total Coca Variances		22050	Unfavourable
Material price variance		18090	Unfavourable
Material quantity variance		3960	Unfavourable
Total Sugar Variances		15220	Favourable
Material price variance		11620	Favourable
Material quantity variance		3600	Favourable

Cocoa		Dark	Light	Total
Std. Qty per case (lbs)		12	9
Production (cases)		4800	13600
Std. Qty for production (lbs)	A	57600	122400	180000
Std. cost per lb ($)	B			4.40
Actual Quantity used (lbs)	C			180900
Actual cost per lb ($)	D			4.50
Material Qty.Variance	E			3960	Unfavourable
(A-C) x B
Material Price Variance	F			18090	Unfavourable
(B-D) x C
Total Liquid Variances (E+F)	G			22050	Unfavourable
Sugar
Cocoa		Dark	Light	Total
Std. Qty per case (lbs)		10	14
Production (cases)		4800	13600
Std. Qty for production (lbs)	A	48000	190400	238400
Std. cost per lb ($)	B			0.60
Actual Quantity used (lbs)	C			232400
Actual cost per lb ($)	D			0.55
Material Qty.Variance	E			3600	Favourable
(A-C) x B
Material Price Variance	F			11620	Favourable
(B-D) x C
Total Liquid Variances (E+F)	G			15220	Favourable

b.

Direct labor rate variance			2136	Unfavourable
Direct labor time variance			130	Unfavourable
Total Direct labor variance			2266	Unfavourable

Working:

		Dark	Light	Total
Standard labor hours per case	A	0.3	0.4
Production -- cases	B	4800	13600
Standard labor hours for production A X B	C	1440	5440	6880
Standard labor rate per hour	D	13.00	13.00	13.00
Actual labor hours worked	E	1310	5580	6890
Acual labor rate per hour (733,000 / 48,250)	F	12.50	13.50	13.31
Labor rate Variance (D-F) x E	G	9250	9250	2136	Unfavourable
Labor efficiency variance (C-E) x D	H	26250	26250	130	Unfavourable
Total labor cost variance	I	17000	17000	2266	Unfavourable