eBook 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. 8 lbs. $7.25 Sugar 10 lbs. 14 lbs. 1.40 Standard labor time 0.50 hr. 0.60 hr. Dark Chocolate Light Chocolate Planned production 4,700 cases 11,000 cases Standard labor rate $15.50 per hr $15.50 per ho 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 5,000 10.000 (cases) Actual Price per Actual Pounds Purchased and Dark Chocolate Light Chocolate Actual production 5,000 (cases) 10,000 Actual Price per Actual Pornds Purchased and Pound Used Cocoa $7.33 140,300 Sugar 1.35 188,000 Actual Labor Rate Actual Labor Hours Used Dark chocolate $15.25 per hr 2,360 Light chocolate 15.80 per hr 6,120 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. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. a. Direct materiais price variance, direct materials quantity variance, and total variance. b. Direct labor rate variance, direct labor time variance, and total variance. Unfavorable 1,824 Direct materials price variance 625 X Favorable Direct materials quantity variance Unfavorable Total direct materials cost variance a. $ 1,199 a. Direct materials price variance, direct materials quantity variance, and total variance. b. Direct labor rate variance, direct labor time variance, and total variance. a. Direct materials price variance 1,824 Lunfavorable Direct materials quantity variance 625 X Favorable Total direct materials cost variance 1,199 Unfavorable b. Direct labor rate variance 1,246 Unfavorable Direct labor time variance 310 X Favorable Total direct labor cost variance 936 Unfavorable 2. The variance analyses should be based on the standard amounts at actual volumes. The budget must flex with the volume changes. If the actual volume is different from the planned volume, as it was in this case, then the budget used for performance evaluation should reflect the change in direct materials and direct labor that will be required for the actual production. In this way, spending from volume changes can be separated from efficiency and price variances. Feedback Check My Work Unfavorable variances can be thought of as increasing costs (a debit). Favorable variances can be thought of as decreasing costs (a credit)
