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 Chocolate Chocolate 10 lbs. 7 lbs. 8 lbs. Standard Price per Pound Cocoa 54.50 0.60 Sugar Standard labor time 0.4 hr. Dark Chocolate Light Chocolate 11,900 cases Planned production Standard labor rate 5,600 cases $14.50 per hr. $14.50 per hr. 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 (cases) 5,300 12,400 Actual Price per Pound Actual Pounds Purchased and Used

Answer 1

Cocoa

calculation of direct material price variance:

= (Standard price per unit of material - Actual price per unit of material) × Actual quantity

= ($4.50/ib. - $4.60/ib ) × 140500 ib. = $14050 U F

Calculation of direct material quantity variance

=(standard quantity of material required for actual production - actual quantity used) × Standard price per unit

((10 ibs. X 5300 Unit)+(7ibsX12400)-140500)X $4.50= $3150 U F

For Sugar

calculation of direct material price variance:

= (Standard price per unit of material - Actual price per unit of material) × Actual quantity

= ($0.60 - $0.55 ) × 186400 = $9320 F

Calculation of direct material quantity variance

=(standard quantity of material required for actual production - actual quantity used) × Standard price per unit

((8 ibs. X 5300 Unit)+(12 ibsX12400)-186400)X $0.60= $2880 F

Total Material Price Variance= $14050 UF+$9320 F= $4730 UF

Total Material Quantity Variance= $3150 UF+ $2880 F=$270 UF

Total Material Cost Variance= $4730 UF+ $270 UF= $500UF

Dark Choclate

Calculation of direct labor rate variance

= (Standard direct labor rate per hour - actual direct labor rate per hour) × Actual hours used

= ($14.5/hour - $14.20/hour) × 1930 Hours= $579 F

Calculation of direct labor efficiency variance:

= (standard hours required for actual production - actual hours used) × standard overhead recovery rate

= (0.40 Hour × 5300 Unit - 1930) × $14.50 = $2755 F

Light Choclate

Calculation of direct labor rate variance

= (Standard direct labor rate per hour - actual direct labor rate per hour) × Actual hours used

= ($14.50/hour - $14.80/hour) × 6350 Hours= $1905 UF

Calculation of direct labor efficiency variance:

= (standard hours required for actual production - actual hours used) × standard overhead recovery rate

= (0.50 Hour × 12400 Unit - 6350) × $14.5 = $2175 U F

Total LAbour Rate Variance= $579 F+ $1905 UF= $1326 UF

Total Labour Efficiency Variance= $2755F+$2175 UF=$580 F

Total Labour Cost Variance = $1326 UF+ $580F=$746 UF