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Flexible Budgeting and Variance Analysis

Flexible Budgeting and Variance Analysis

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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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 Cocoa Sugar Standard labor time Planned production Standard labor rate Actual production (cases) Cocoa Sugar Dark chocolate Light chocolate Required: Dark Chocolate 12 lb. 10 lb. 0.4 hr. a. b. Light Chocolate 9 lb. 14 lb. 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 5,000 cases $13.5 per hr. 0.5 hr. Dark Chocolate 4,800 Actual Price per Pound $4.4 0.55 Actual Labor Rate $13.1 per hr. 13.9 per hr. Standard Price per Pound Direct materials price variance Direct materials quantity variance Total direct materials cost variance Direct labor rate variance Direct labor time variance Total direct labor cost variance 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: a. Direct materials price variance, direct materials quantity variance, and total variance. b. Direct labor rate variance, direct labor time variance, and total variance. Light Chocolate 12,500 Actual Pounds Purchased and Used 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. $4.3 0.6 $ Light Chocolate 12,000 cases $13.5 per hr. $ $ $ 171,000 217,400 Actual Labor Hours Used 1,750 6,410 $ Unfavorable V Unfavorable ✔ Unfavorable V Unfavorable ✔ Favorable V Unfavorable ✔ 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 separated from efficiency and price variances.
Transcribed Image Text: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 Cocoa Sugar Standard labor time Planned production Standard labor rate Actual production (cases) Cocoa Sugar Dark chocolate Light chocolate Required: Dark Chocolate 12 lb. 10 lb. 0.4 hr. a. b. Light Chocolate 9 lb. 14 lb. 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 5,000 cases $13.5 per hr. 0.5 hr. Dark Chocolate 4,800 Actual Price per Pound $4.4 0.55 Actual Labor Rate $13.1 per hr. 13.9 per hr. Standard Price per Pound Direct materials price variance Direct materials quantity variance Total direct materials cost variance Direct labor rate variance Direct labor time variance Total direct labor cost variance 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: a. Direct materials price variance, direct materials quantity variance, and total variance. b. Direct labor rate variance, direct labor time variance, and total variance. Light Chocolate 12,500 Actual Pounds Purchased and Used 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. $4.3 0.6 $ Light Chocolate 12,000 cases $13.5 per hr. $ $ $ 171,000 217,400 Actual Labor Hours Used 1,750 6,410 $ Unfavorable V Unfavorable ✔ Unfavorable V Unfavorable ✔ Favorable V Unfavorable ✔ 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 separated from efficiency and price variances.
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