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Case 11-55 Comprehensive Variance Analysis Used to Explain Operational Results; Review of Chapters 10 and 11; Activity-Based Costing; Sales Variances (Appendix B) (LO 11-4, 11-5,

Case 11-55 Comprehensive Variance Analysis Used to Explain Operational Results; Review of Chapters 10 and 11; Activity-Based Costing; Sales Variances (Appendix B) (LO 11-4, 11-5, 11-7, 11-9)

[The following information applies to the questions displayed below.]

Colonial Cookies, Inc., bakes cookies for retail stores. The companys best-selling cookie is chocolate nut supreme which is marketed as a gourmet cookie and regularly sells for $10.00 per pound. The standard cost per pound of chocolate nut supreme, based on Colonials normal monthly production of 300,000 pounds, is as follows:

Cost Item Quantity Standard Unit Cost Total Cost
Direct materials:
Cookie mix 10 oz. $ .03 per oz. $ .30
Milk chocolate 5 oz. .16 per oz. .80
Almonds 1 oz. .51 per oz. .51

$ 1.61

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 direct-labor hr. $ 1.62

Total standard cost per pound $ 4.07

*Direct-labor rates include employee benefits.
Applied on the basis of direct-labor hours.

Colonials management accountant, Karen Blair, prepares monthly budget reports based on these standard costs. Februarys contribution report, which compares budgeted and actual performance, is shown in the following schedule.

Contribution Report for February
Static Budget Actual Variance
Units (in pounds) 300,000 325,000 25,000 F
Revenue $ 3,000,000 $ 3,217,500 $ 217,500 F

Direct material $ 483,000 $ 678,450 $ 195,450 U
Direct labor 252,000 251,400 600 F
Variable overhead 486,000 678,799 192,799 U

Total variable costs $ 1,221,000 $ 1,608,649 $ 387,649 U

Contribution margin $ 1,779,000 $ 1,608,851 $ 170,149 U

Justine Madison, president of the company, is disappointed with the results. Despite a sizable increase in the number of cookies sold, the products 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 February
Cost Item Quantity Actual Cost
Direct materials:
Cookie mix 3,325,000 oz. $ 99,750
Milk chocolate 1,930,000 oz. 405,300
Almonds 340,000 oz. 173,400
Direct labor:
Mixing 325,000 min. 78,000
Baking 578,000 min. 173,400
Variable overhead 678,799

Total variable costs $ 1,608,649

rev: 10_07_2015_QC_CS-27359, 10_08_2015_QC_CS-27359

Case 11-55 Part 4

4.

What is the total variance between the flexible budget contribution margin and the actual contribution margin in the new report prepared for part (1)? Calculate the total contribution margin variance by computing the following variances. (Assume that all materials are used in the month of purchase.). (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

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.
Total

Please answer A-G with working notes.

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