Flexible Budgeting and Variance Analysis I Love My Chocolate Company makes dark
ID: 2576347 • 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 Standard Amount per Case Dark Light Standard Price per Chocolate Pound Cocoa Sugar Standard labor time Chocolate 8 lbs 14 lbs 0.60 hr 12 lbs. $7.25 10 lbs. 1.40 0.50 hr Dark Chocolate 4,700 cases $15.50 per hr Light Chocolate 11,000 cases $15.50 per hr Planned production Standard labor rate 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: Dark Chocolate Light Chocolate Actual production 5,000 10,000 cases Actual Price per Actual Pounds Purchased and Pound Used $7.33 1.35 Actual Labor Rate $15.25 per hr 15.80 per hr Cocoa 140,300 Sugar 188,000 Actual Labor Hours Used Dark chocolate Light chocolate 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. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number 2,360 6,120 a. Direct materials price variance, direct materials quantity variance, and total variance b. Direct labor rate variance, direct labor time variance, and total variance Direct materials price variance Direct materials quantity variance Total direct materials cost variance Unfavorable Favorable Unfavorable a. Direct labor rate variance Direct labor time variance Total direct labor cost variance Unfavorable Favorable Unfavorable b.Explanation / Answer
Direct Material Price Variance(DMPV) = (Standard Price-Actual Price)*Actual Quantity
cocoa : ($7.25-$7.33)*140,300 = $ 11,224 UF
Sugar : ($1.40-$1.35)*188,000 = $ (9,400) F
Direct Material Quantity Variance(DMQV) = (Standard Quantity for Actual Output-Actual Quantity)*Standard Price
Cocoa : (140,000-140,300)*$7.25 = $2,175 UF
Sugar : (190,000-188,000)*1.40 = $(2,800) F
*Standard Quantity for Actual Output for Cocoa = 5000*12+10000*8 = 140,000
*Standard Quantity for Actual Output for Sugar = 5000*10+10000*14 = 190,000
Total direct Material Cost Variance = DMPV+ DMQV
Cocoa : $ 11,224 UF + $2,175 UF = $ 13,339 UF
Sugar: $ (9,400) F + $(2,800) F = $ (12,200) F
...........................................................................................................................................................
Direct labour rate variance (DLRV) = (Standard Rate - Actual Rate) * Actual Hours Paid for
Dark Chocolate : (15.50-15.25)*2360 = $ (590) F
Light Chocolate : (15.50-15.80)*6120 = $ 1836 UF
Total = $ 1,246 UF
Direct Labour Time Variance(DLTV) = (Standards Hours for Actual Output - Actual Hours Worked)*Standard Rate
Dark Chocolate : (2,500-2360 )*15.50 = $ (2,170) F
Light Chocolate : (6000-6120)*15.50 = $ 1860 UF
Total = $ (310) F
**Standards Hours for Actual Output for Dark Chocolate = 5000* 0.50 = 2,500 hrs
**Standards Hours for Actual Output for Light Chocolate = 10000*0.60 = 6,000 hrs
Direct labour cost variance = DLRV+DLTV
Dark Chocolate : $ (590) F + $ (2,170) F = $ (2,760) F
Light Chocolate : $ 1836 UF + $ 1860 UF = $ 3,696 UF
Total = $ 936 UF
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