At the monthly management meeting, Leslie Smith, president of Mama Frans Fantastic Foods, was reviewing the April budget report with some satisfaction. Our actual results are never exactly what we budget, but I guess if were off by only 2% to 3%, weve done a good job forecasting. The report she referred to follows:

April Budget Report

Actual Budget Variance

Sales (in pounds) 450,000 400,000 50,000 F

Revenue $3,555,000 $3,200,000 $355,000 F

Less Variable Expenses

Direct Materials 865,000 580,000 285,000 U

Direct Labor 348,000 336,000 12,000 U

Variable Overhead 750,000 648,000 102,000 U

Total Variable Expenses 1,963,000 1,564,000 399,000 U

Contribution Margin $1,592,000 $1,636,000 ($ 44,000 U)

Nathan Porter, the companys purchasing manager, chimed in. It surprises me that we did as well as we did. I know that chocolate prices went up dramatically last month, so I expected a much larger variance. And we had that little mix-up when we ordered a batch of whole almonds instead of sliced almonds.

But controller Ashley Corley looked concerned. Hang on a minute, guys. I dont think this budget report gives us the true picture. Let me work on it some more and get back to you.

Ashleys first step was to track down the following standard cost card for the cookies:

Chocolate Nut Supreme Cookies

(per cookie)

Item Quantity Standard Unit Cost Total Cost

Direct materials:

Cookie Mix 10 oz $0.02 per oz $0.20

Milk Chocolate 5 oz $0.15 per oz 0.75

Almonds 1 oz $0.50 per oz 0.50

Total Direct Materials $1.45

Direct Labor:

Mixing 1 min. $14.40 per Hour $0.24

Baking 2 min $18.00 per Hour 0.60

Total Direct Labor $0.84

Ashley also tracked down this additional information about the months operations:

Item Actual Quantity Used Actual Cost

Direct Materials:

Cookie Mix 4,650,000 oz $ 93,000

Milk Chocolate 2,660,000 oz 532,000

Almonds 480,000 oz 240,000

Direct Labor:

Mixing 540,000 minutes 108,000

Baking 800,000 minutes 240,000

Total Variable Costs $1,213,000

Required (USING EXCEL):

1. Prepare a more informative performance report for the month of April (use the template in the Flexible Budget section)
2. Are the results better or worse than Leslie had first thought? Explain your answer.
3. Calculate the direct materials variances for each input, assuming that all materials purchased were used during the month.
4. Calculate the direct labor variances for April.
5. What do you think may have caused the April Variances? Are the two situations mentioned by Nathan factors in these variances? Explain.