Swiss Chocolate's U.S. division is experiencing an increase in demand for the month of October due to the upcoming holiday season. The following fact pattern forms the basis for the static budget:

Sales per unit are $2.65.
Required:
In good form, prepare the static budget operating income in contribution format.
Suppose sales demand increases to 500,000 units for October. Prepare the flexible budget for October in contribution format.
Compute and reconcile the sales volume variance. Indicate whether the variance is favorable or unfavorable.
Presume the following:
Total direct costs incurred for October
Raw materials = 135,000 lbs. used.............$300,000
Direct labor = 12,000 hrs. incurred.............$112,600
Volume in units........................................515,000
Using the three-pronged method to present your calculations, compute the direct materials price variance, the direct materials efficiency variance, the labor price variance, and the labor efficiency variance. Indicate whether these are favorable or unfavorable.
Appraise the outcome of the direct cost variance and give one possible explanation for each of the variances. Be sure that your explanation is interrelated and provides a complete picture of performance for the Swiss Chocolate Manufacturing Company for October.

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Swiss Chocolate Manufacturing Company Variable costs Fixed costs total total Raw materials 200,000 Direct manufacturing labor 100,000 Indirect manufacturing labor 52,500 Factory insurance and utilities 31,500 Depreciation – machinery and factory 38,500 Repairs and maintenance – factory 14,000 Selling, marketing and distribution expenses 20,000 40,000 General and administrative 60,000 expenses %24 %24 %24 %24 %24 Variable cost and volume data Milk chocolate Raw materials = 0.25 lbs x $2.00/lb. 0.50 Direct labor = 0.025 hr x $10/hr. 0.25 %3! Volume in units 400,000