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Flexible Budgeting and Variance Analysis

Sharons Delights Chocolate Company makes dark chocolate and light chocolate. Both products require cocoa and sugar. The following planning information has been made available:

Line Item Description	Standard Amount per Case Dark Chocolate	Standard Amount per Case Light Chocolate	Standard Price per Pound
Cocoa	12 lbs.	9 lbs.	$5.30
Sugar	10 lbs.	14 lbs.	0.60
Standard labor time	0.3 hr.	0.4 hr.

Line Item Description	Dark Chocolate	Light Chocolate
Planned production	4,000 cases	10,600 cases
Standard labor rate	$15.00 per hr.	$15.00 per hr.

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

Line Item Description	Dark Chocolate	Light Chocolate
Actual production (cases)	3,800	11,000

Line Item Description	Actual Price per Pound	Actual Quantity Purchased and Used
Cocoa	$5.40	145,300
Sugar	0.55	187,200

Line Item Description	Actual Labor Rate	Actual Labor Hours Used
Dark chocolate	$14.50 per hr.	1,040
Light chocolate	15.50 per hr.	4,510

Required:

1. Prepare the following variance analyses for both chocolates and the total, based on the actual results and production levels at the end of the budget year:

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

b. 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.

Line Item Description	Amount	variance
Direct materials price variance	$fill in the blank 1	FavorableUnfavorableUnfavorable
Direct materials quantity variance	$fill in the blank 3	FavorableUnfavorableUnfavorable
Total direct materials cost variance	$fill in the blank 5	FavorableUnfavorableUnfavorable

Line Item Description	Amount	variance
Direct labor rate variance	$fill in the blank 7	FavorableUnfavorableUnfavorable
Direct labor time variance	$fill in the blank 9	FavorableUnfavorableUnfavorable
Total direct labor cost variance	$fill in the blank 11	FavorableUnfavorableUnfavorable

2. The variance analyses should be based on the fill in the blank 1 of 4

actualstandardstandard

amounts at fill in the blank 2 of 4

actualstandardactual

volumes. The budget must flex with the volume changes. If the fill in the blank 3 of 4

actualstandardactual

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 fill in the blank 4 of 4

actualstandardactual

production. In this way, spending from volume changes can be separated from efficiency and price variances.

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