I Love My Chocolate Company makes dark chocolate and light chocolate. Both produ
ID: 2791354 • Letter: I
Question
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.
Standard Amount per Case Dark Chocolate Light Chocolate Standard Price per Pound Cocoa 12 lbs. 9 lbs. $4.80 Sugar 10 lbs. 14 lbs. 0.60 Standard labor time 0.4 hr. 0.5 hr.Explanation / Answer
a. Direct Material Price Variance = (Actual Quantity X Actual Price) - (Actual Quantity X Standard Price)
Dark chocolate = ( 156800 X 4.9) - (156800 X 4.8)
= 768320 - 752640
= 15680
Light chocolate = ( 197700 X 0.5) - (197700 X 0.6)
= 98850 - 118620
= -19770
So, Direct Material Price Variance = -4090 = Unfavorable
Direct Material Quantity Variance = (Standard Quantity - Actual Quantity) X Standard Price
Dark chocolate = ( 105600 - 156800) X 4.8
= -245760
Light chocolate =( 216000 - 197700) X 0.6
= 10980
So, Direct Material Quantity Variance = -234780 = Unfavorable
Total Direct Material Cost Variance = Direct Material Price Variance + Direct Material Quantity Variance
=(-4090) + (-234780)
= -238870 = Unfavorable
b. Direct Labour Rate Variance = Actual Cost - Standard Cost of the Actual Hours
Step 1: Calculate Actual hours
Actual Hours = Units x Actual Price
Dark choclate = 4600 x 4.9 = 22540
Light choclate = 11200 x 0.5 = 5600
Step 2: Calculate the actual cost
Actual Cost = Actual Hours x Actual Rate
Dark choclate = 22540 X 13.60 = 306544
Light choclate = 5600 X 14.40 = 80640
Step 3: Calculate the standard cost of actual number of hours
Standard Cost of actual hours = Actual Hours x Standard Rate
Dark choclate = 22540 X 14 = 315560
Light choclate = 5600 X 14 = 78400
Step 4: Calculate the variance
Labor Rate Variance = Actual Cost - Standard Cost of the Actual Hours
Dark choclate = 306544 - 315560 = -9016
Light choclate = 80640 - 78400 = 2240
Direct Labour Rate Variance= -6776 = UnFavorable
Direct Labour time Variance = AQ x AR - AQ x SR
Dark chocolate = (4600 X 13.60) - (4600 X 14)
= 62560 - 64400
= -1840
Light chocolate = (11200 X 14.40) - (11200 X 14)
= 161280 - 156800
= 4480
So, Direct Labour time Variance= 2640 = Favorable
Total Direct Labour Cost Variance = Direct labor rate Variance + Direct labor rate Variance
= -6776 + 2640
= -4136 = Unfavorable
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