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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

  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.

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