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.		$4.60
Sugar	8 lbs.		12 lbs.		0.60
Standard labor time	0.3 hr.		0.4 hr.

	Dark Chocolate		Light Chocolate
Planned production	3,900 cases		10,300 cases
Standard labor rate	$14.50 per hr.		$14.50 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)	3,700		10,700
	Actual Priceper Pound		Actual PoundsPurchased and Used
Cocoa	$4.70		112,500
Sugar	0.55		154,100
	Actual Labor Rate		Actual LaborHours Used
Dark chocolate	$14.10 per hr.		1,010
Light chocolate	14.90 per hr.		4,390

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	$
	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 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.