1. 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	10 lbs.		7 lbs.		$4.40
   Sugar	8 lbs.		12 lbs.		0.60
   Standard labor time	0.4 hr.		0.5 hr.

   	Dark Chocolate		Light Chocolate
   Planned production	4,200 cases		12,100 cases
   Standard labor rate	$15.00 per hr.		$15.00 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)	4,000		12,600
   	Actual Price per Pound		Actual Pounds Purchased and Used
   Cocoa	$4.50		128,800
   Sugar	0.55		178,600
   	Actual Labor Rate		Actual Labor Hours Used
   Dark chocolate	$14.70 per hr.		1,460
   Light chocolate	15.30 per hr.		6,460

   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:

   a. Price variance is the difference between the actual and standard prices, multiplied by the actual quantity.Direct materials price variance, The cost associated with the difference between the standard quantity and the actual quantity of direct materials used in producing a commodity.direct materials quantity variance, and total variance.

   b. The cost associated with the difference between the standard rate and the actual rate paid for direct labor used in producing a commodity.Direct labor rate variance, The cost associated with the difference between standard and actual hours of direct labor spent for producing a commodity.direct labor time variance, and total variance.

   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	$	Unfavorable Favorable Unfavorable
   	Direct materials quantity variance	$	Unfavorable Favorable Unfavorable
   	Total direct materials The difference between actual cost and the standard cost at actual volumes.cost variance	$	Unfavorable Favorable Unfavorable
   b.	Direct labor rate variance	$	Unfavorable Favorable Unfavorable
   	Direct labor time variance	$	Favorable Favorable Unfavorable
   	Total direct labor cost variance	$	Unfavorable Favorable Unfavorable

   2. The variance analyses should be based on the

   • actual
   • standard
   amounts at
   • actual
   • standard
   volumes. The budget must flex with the volume changes. If the
   • actual
   • standard
   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
   • standard
   production. In this way, spending from volume changes can be separated from efficiency and price variances.