Flexible Budgeting and Variance Analysis I Love My Chocolate Company makes dark
ID: 2526989 • Letter: F
Question
Flexible Budgeting and Variance Analysis
I Love My Chocolate Company makes dark chocolate and light chocolate. Both products require cocoa and sugar. The following planning information has been made available:
I Love My Chocolate Company does not expect there to be any beginning or ending inventories of cocoa or sugar. At the end of the budget year, I Love My Chocolate Company had the following actual results:
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. If there is no variance, enter a zero.
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.
Standard Amount per Case Dark Chocolate Light Chocolate Standard Price per Pound Cocoa 10 lbs. 7 lbs. $5.00 Sugar 8 lbs. 12 lbs. 0.60 Standard labor time 0.3 hr. 0.4 hr.Explanation / Answer
Dark Chocolate - Actual Production = 3,800 Cases Light Chocolate - Actual Production = 13,900 Cases Standard Actual SQ / SH SR Total AQ / AH AR Total Cocoa - Dark Chocolate 38,000 5.00 190,000 Cocoa - Light Chocolate 97,300 5.00 486,500 Total Cocoa 135,300 5.00 676,500 136,000 5.10 693,600 Sugar - Dark 30,400 0.60 18,240 Sugar - Light 166,800 0.60 100,080 Total Sugar 197,200 0.60 118,320 192,300 0.55 105,765 Labor - Dark 1,140 16.50 18,810 1,040 16.00 16,640 Labor - Light 5,560 16.50 91,740 5,700 17.00 96,900 Total Labor 6,700 16.50 110,550 6,740 16.85 113,540 Answer a. Material Price Variance = (SR - AR) X AQ Material Price Variance - Cocoa = ($5.00 - $5.10) X 136,000 pounds Material Price Variance - Cocoa = $13,600 (U) Material Price Variance - Sugar = ($0.60 - $0.55) X 192,300 pounds Material Price Variance - Sugar = $9,615 (F) Material Quantity Variance = (SQ - AQ) X SR Material Quantity Variance - Cooca = (135,300 pounds - 136,000 pounds) X $5 Material Quantity Variance - Cooca = $3,500 (U) Material Quantity Variance - Sugar = (197,200 pounds - 192,300 pounds) X $0.60 Material Quantity Variance - Sugar = $2,940 (F) Material Price Variance Cocoa 13,600 (U) Sugar 9,615 (F) Total Material Price Variance 3,985 (U) Material Quantity Variance Cocoa 3,500 (U) Sugar 2,940 (F) Total Material Quantity Variance 560 (U) Total Material Cost Variance 4,545 (U) Answer b. Labor Rate Variance = (SR - AR) X AH Labor Rate Variance - Dark = ($16.50 - $16.00) X 1,040 hrs Labor Rate Variance - Dark = $520 (F) Labor Rate Variance - Light = ($16.50 - $17.00) X 5,700 hrs Labor Rate Variance - Light = $2,850 (U) Labor Time (Efficiency) Variance = (SH - AH) X SR Labor Time (Efficiency) Variance - Dark = (1,140 Hrs - 1,040 hrs) X $16.50 Labor Time (Efficiency) Variance - Dark = $1,650 (F) Labor Time (Efficiency) Variance - Light = (5,560 hrs - 5,700 hrs) X $16.50 Labor Time (Efficiency) Variance - Light = $2,310 (U) Labor Rate Variance Dark 520 (F) Light 2,850 (U) Total Labor Rate Variance 2,330 (U) Labor Time Variance Dark 1,650 (F) Light 2,310 (U) Total Labor Time Variance (660) (F) Total Labor Cost Variance 2,990 (U) Answer 2. The variance analyses should be based on the standard amounts at actual volumes. The budget must flex with the volume changes. If the actual 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 actual production. In this way, spending from volume changes can be isolated from efficiency and price variances.
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