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Flexible Budgeting and Variance Analysis

Belgian 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.		$4.2
Sugar	9 lbs.		13 lbs.		0.6
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	3,900 cases		11,100 cases
Standard labor rate	$16 per hr.		$16 per hr.

Belgian Chocolate does not expect there to be any beginning or ending inventories of cocoa or sugar. At the end of the budget year, Belgian Chocolate had the following actual results:

	Dark Chocolate		Light Chocolate
Actual production (cases)	3,700		11,500
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$4.3		133,400
Sugar	0.55		178,200
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$15.7 per hr.		1,350
Light chocolate	16.3 per hr.		5,890

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	$
	Direct materials quantity variance	$
	Total direct materials cost variance	$
b.	Direct labor rate variance	$
	Direct labor time variance	$
	Total direct labor cost variance	$

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.

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