Flexible Budgeting and Variance Analysis
I Love My Chocolate Company makes dark chocolate and lightchocolate. Both products require cocoa and sugar. The followingplanning information has been made available:
| Standard Amount per Case |
| DarkChocolate | LightChocolate | StandardPrice per Pound |
| Cocoa | 10 lbs. | | 7 lbs. | | $4.20 | |
| Sugar | 8 lbs. | | 12 lbs. | | 0.60 | |
| Standard labor time | 0.4 hr. | | 0.5 hr. | | | |
| Dark Chocolate | Light Chocolate |
| Planned production | 4,400 cases | | 13,300 cases | |
| Standard labor rate | $16.50 per hr. | | $16.50 per hr. | |
I Love My Chocolate Company does not expect there to be anybeginning or ending inventories of cocoa or sugar. At the end ofthe budget year, I Love My Chocolate Company had the followingactual results:
| Dark Chocolate | Light Chocolate |
| Actual production (cases) | 4,200 | 13,800 |
| Actual Priceper Pound | Actual PoundsPurchased and Used |
| Cocoa | $4.30 | | 139,300 | |
| Sugar | 0.55 | | 194,200 | |
| Actual Labor Rate | Actual LaborHours Used |
| Dark chocolate | $16.20 per hr. | | 1,530 | |
| Light chocolate | 16.80 per hr. | | 7,070 | |
Required:
1. Prepare the following variance analyses forboth chocolates and the total, based on the actual results andproduction levels at the end of the budget year:
a. Direct materials pricevariance, direct materials quantity variance, and totalvariance.
b. Direct labor rate variance,direct labor time variance, and total variance.
Enter a favorable variance as a negative number using a minussign and an unfavorable variance as a positive number.
| 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 onthe amounts at volumes. Thebudget must flex with the volume changes. Ifthe volume is different from the planned volume,as it was in this case, then the budget used for performanceevaluation should reflect the change in direct materials and directlabor that will be required for the production. Inthis way, spending from volume changes can be separated fromefficiency and price variances.
