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	9 lb.		6 lb.		$5.3
Sugar	7 lb.		11 lb.		0.6
Standard labor time	0.3 hr.		0.4 hr.

	Dark Chocolate		Light Chocolate
Planned production	3,800 cases		12,000 cases
Standard labor rate	$16 per hr.		$16 per hr.

I Love My Chocolate 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)	3,600		12,500
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$5.4		107,900
Sugar	0.55		158,600
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$15.7 per hr.		980
Light chocolate	16.3 per hr.		5,130

Required:

Prepare the following variance analyses for both chocolates and total, based on the actual results and production levels at the end of the budget year:

1. Direct materials price variance, direct materials quantity variance, and total variance.
2. Direct labor rate variance, 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. If there is no variance, enter a zero.

a.	Direct materials price variance	$fill in blank
	Direct materials quantity variance	$fill in the blank 3
	Total direct materials cost variance	$fill in the blank 5
b.	Direct labor rate variance	$fill in the blank 7
	Direct labor time variance	$fill in the blank 9
	Total direct labor cost variance	$fill in the blank 11

2. The variance analyses should be based on the amounts at volumes. The budget must flex with the volume changes. If the 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 production. In this way, spending from volume changes can be separated from efficiency and price variances.