Comprehensive flexible budgets and variance analysis (CMA Adapted)

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

April Budget Report

	Budget	Actual	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 material	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 company's 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 don't think this budget report gives us the true picture. Let me work on it some more and get back to you.

Ashley's first step was to track down the following standard cost card for the cookies.

Chocolate Nut Supreme Cookies

Item	Quantity	Standard Unit Cost	Total Cost
Direct materials
Cookie mix	10 ounces	$0.02 per ounce	$0.20
Milk chocolate	5 ounces	$0.15 per ounce	0.75
Almonds	1 ounce	$0.50 per ounce	0.50
Total direct materials				$1.45
Direct labor
Mixing	1 minute	$14.40 per hour	0.24
Baking	2 minutes	$18.00 per hour	0.60
Total direct labor				0.84
Variable overhead	3 minutes	$32.40 per hour		1.62
Total standard cost per pound				$3.91

Ashley also tracked down this additional information about the month's operations.

Item	Actual Quantity Used	Actual Cost
Direct materials
Cookie mix	4,650,000 ounces	$93,000
Milk chocolate	2,660,000 ounces	532,000
Almonds	480,000 ounces	240,000
Direct labor
Mixing	540,000 minutes	108,000
Baking	800,000 minutes	240,000
Variable overhead		750,000
Total actual variable costs		$1,963,000

Required

a.

Prepare a more informative performance report for the month of April.

b.

Are the results better or worse than Leslie had first thought? Explain your answer.

c.

Did Mama Fran's sell its cookies at the budgeted selling price? If not, was the trade-off between the price and the sales quantity a good choice? Why or why not?

d.

Calculate the direct materials variances for each input, assuming that all materials purchased were used during the month.

e.

Calculate the direct labor variances for April.

f.

Calculate the variable overhead variances for April.

g.

What do you think might have caused the April variances?

h.

Prepare a memo that Ashley Corley can send to Leslie Smith explaining the month's results.