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	11 lbs.		8 lbs.		$4.20
Sugar	9 lbs.		13 lbs.		0.60
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	5,700 cases		11,300 cases
Standard labor rate	$16.00 per hr.		$16.00 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)	5,400		11,800
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$4.30		154,600
Sugar	0.55		197,000
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$15.70 per hr.		1,970
Light chocolate	16.30 per hr.		6,050

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. Direct materials price variance, direct materials quantity variance, and total variance.

b. 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 the blank 1	FavorableUnfavorableUnfavorable
	Direct materials quantity variance	$fill in the blank 3	FavorableUnfavorableUnfavorable
	Total direct materials cost variance	$fill in the blank 5	FavorableUnfavorableUnfavorable
b.	Direct labor rate variance	$fill in the blank 7	FavorableUnfavorableUnfavorable
	Direct labor time variance	$fill in the blank 9	FavorableUnfavorableFavorable
	Total direct labor cost variance	$fill in the blank 11	FavorableUnfavorableUnfavorable

2. The variance analyses should be based on the

actualstandardstandard

amounts at

actualstandardactual

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

actualstandardactual

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

actualstandardactual

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