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eBook Question Content Area Flexible Budgeting and Variance Analysis I Love My Chocolate Company makes dark chocolate and light chocolate. Both products require cocoa and

  1. eBook

    Question Content Area

    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 hr.

    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 (cases) 5,000 10,000
    Actual Price per Pound Actual Pounds Purchased and 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 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 $fill in the blank 1

    FavorableUnfavorable

    Direct materials quantity variance $fill in the blank 3

    FavorableUnfavorable

    Total direct materials cost variance $fill in the blank 5

    FavorableUnfavorable

    b. Direct labor rate variance $fill in the blank 7

    FavorableUnfavorable

    Direct labor time variance $fill in the blank 9

    FavorableUnfavorable

    Total direct labor cost variance $fill in the blank 11

    FavorableUnfavorable

    2. The variance analyses should be based on the

    actualstandard

    amounts at

    actualstandard

    volumes. The budget must flex with the volume changes. If the

    actualstandard

    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

    actualstandard

    production. In this way, spending from volume changes can be separated from efficiency and price variances.

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