Case 11-55 Comprehensive Variance Analysis Used to Explain Operational Results; Review of Chapters 10 and 4 11; Activity-Based Costing; Sales Variances ( Appendix B) ( LO 11-4, 2 11-5, 2 11-7, 2 11-9) Aunt Molly's Old Fashioned Cookies bakes cookies for retail stores. The company's best-selling cookie is chocolate nut Page 518 supreme, which is marketed as a gourmet cookie and regularly sells for $8.00 per pound. The standard cost per pound of chocolate nut supreme, based on Aunt Molly's normal monthly production of 400,000 pounds, is as follows: Standard Cost Item Quantity Unit Cost Total Cost Direct materials: Cookie mix 10 oz. $.02 per oz. $ .20 Milk chocolate 5 oz. 15 per oz. .75 Almonds 1 0z. 50 per oz. 50 $1.45 Direct labor: Mixing 1 min. $14 40 per hr. $ .24 Baking 2 min. 18.00 per hr. 60 $ 84 Variable overhead 3 min. $32.40 per $1.62 direct-labor hr. Total standard cost per pound $3.91 Direct-labor rates include employee benefits. `Applied on the basis of direct-labor hours. Aunt Molly's management accountant, Karen Blair, prepares monthly budget reports based on these standard costs. April's contribution report, which compares budgeted and actual performance, is shown in the following schedule.Contribution Report for April Static Budget Actual Variance Units (in pounds) 400,000 450,000 50,000 F Revenue $3,200,000 $3,555,000 $355,000 F Direct material $ 580,000 $ 865,000 $285,000 U Direct labor 336,000 348,000 12,000 U Variable overhead 648,000 750,000 102,000 U Total variable costs $1,564,000 $1,963,000 $399,000 U Contribution margin $1,636,000 $1,592,000 $ 44,000 U Justine Madison, president of the company, is disappointed with the results. Despite a sizable increase in the number of cookies sold, the product's expected contribution to the overall profitability of the firm decreased. Madison has asked Blair to identify the reason why the contribution margin decreased. Blair has gathered the following information to help in her analysis of the decrease. Usage Report for April Cost Item Quantity 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 450,000 min. 108,000 Baking 800,000 min. 240,000 Variable overhead 750,000 Total variable costs $1,963,000Required: 1. Prepare a new contribution report for April, in which: Page 519 . The static budget column in the contribution report is replaced with a flexible budget column. . The variances in the contribution report are recomputed as the difference between the flexible budget and actual columns. 2. What is the total contribution margin in the flexible budget column of the new report prepared for requirement 1? 3. Explain (i.e., interpret) the meaning of the total contribution margin in the flexible budget column of the new report prepared for requirement 1. 4. What is the total variance between the flexible budget contribution margin and the actual contribution margin in the new report prepared for requirement I? Explain this total contribution margin variance by computing the following variances. (Assume that all materials are used in the month of purchase.) a. Direct-material price variance. b. Direct-material quantity variance. c. Direct-labor rate variance. d. Direct-labor efficiency variance. e. Variable-overhead spending variance. f. Variable-overhead efficiency variance. g. Sales-price variance. 5. a. Explain the problems that might arise in using direct-labor hours as the basis for applying overhead. b. How might activity-based costing (ABC) solve the problems described in requirement 5a