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$.$ $$4\mathrm{.}9$

Sugar $7$ lb$.11$ lb$.0\mathrm{.}6$

Standard labor time $0\mathrm{.}4$ hr$.0\mathrm{.}5$ hr$.$

Dark Chocolate Light Chocolate

Planned production $3,900$ cases $11,000$ cases

Standard labor rate $$13\mathrm{.}5$ per hr$.$ $$13\mathrm{.}5$ 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$)3,70011,400$

Actual Price per Pound Actual Pounds Purchased and Used

Cocoa $$5102,200$

Sugar $0\mathrm{.}55147,500$

Actual Labor Rate Actual Labor Hours Used

Dark chocolate $$13\mathrm{.}1$ per hr$.1,350$

Light chocolate $13\mathrm{.}9$ per hr$.5,840$

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:

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

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 $1$

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.