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 Chocolate Light Chocolate Standard Price per Pound Cocoa 12 lb. 9 lb. $4.9 Sugar 10 lb. 14 lb. 0.6 Standard labor time 0.3 hr. 0.4 hr. Dark Chocolate Light Chocolate Planned production 5,100 cases 10,300 cases Standard labor rate $14.5 per hr. $14.5 per hr. I Love My Chocolate 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 (cases) 4,800 10,700 Actual Price per Pound Actual Pounds Purchased and Used Cocoa $5 154,700 Sugar 0.55 192,900 Actual Labor Rate Actual Labor Hours Used Dark chocolate $14 per hr. 1,310 Light chocolate 15 per hr. 4,390 Required: Prepare the following variance analyses for both chocolates and total, based on the actual results and production levels at the end of the budget year: Direct materials price variance, direct materials quantity variance, and total variance. 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. 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 $
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Flexible
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 Chocolate | Light Chocolate | Standard Price per Pound | ||||
| Cocoa | 12 lb. | 9 lb. | $4.9 | |||
| Sugar | 10 lb. | 14 lb. | 0.6 | |||
| Standard labor time | 0.3 hr. | 0.4 hr. |
| Dark Chocolate | Light Chocolate | |||
| Planned production | 5,100 cases | 10,300 cases | ||
| Standard labor rate | $14.5 per hr. | $14.5 per hr. |
I Love My Chocolate 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 (cases) | 4,800 | 10,700 | ||
| Actual Price per Pound | Actual Pounds Purchased and Used | |||
| Cocoa | $5 | 154,700 | ||
| Sugar | 0.55 | 192,900 | ||
| Actual Labor Rate | Actual Labor Hours Used | |||
| Dark chocolate | $14 per hr. | 1,310 | ||
| Light chocolate | 15 per hr. | 4,390 |
Required:
Prepare the following variance analyses for both chocolates and total, based on the actual results and production levels at the end of the budget year:
- Direct materials price variance, direct materials quantity variance, and total variance.
- 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.
| 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 | $ |
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