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Colonial Cookies, Inc., bakes cookies for retail stores. The companys best-selling cookie is chocolate nut supreme which is marketed as a gourmet cookie and regularly sells for $9.00 per pound. The standard cost per pound of chocolate nut supreme, based on Colonials normal monthly production of 380,000 pounds, is as follows:

Cost Item	Quantity			Standard Unit Cost			Total Cost
Direct materials:
Cookie mix		10	oz.	$	.02	per oz.	$	.20
Milk chocolate		5	oz.		.15	per oz.		.75
Almonds		1	oz.		.50	per oz.		.50
							$	1.45
Direct labor:*
Mixing		1	min.		14.40	per hr.	$	.24
Baking		2	min.		18.00	per hr.		.60
							$	.84
Variable overhead		3	min.		32.40	per direct-labor hr.	$	1.62
Total standard cost per pound							$	3.91

*Direct-labor rates include employee benefits.

Applied on the basis of direct-labor hours.

Colonials management accountant, Karen Blair, prepares monthly budget reports based on these standard costs. Februarys contribution report, which compares budgeted and actual performance, is shown in the following schedule.

Contribution Report for February
	Static Budget			Actual			Variance
Units (in pounds)		380,000			405,000			25,000	F
Revenue	$	3,420,000		$	3,604,500		$	184,500	F
Direct material	$	551,000		$	774,500		$	223,500	U
Direct labor		319,200			313,320			5,880	F
Variable overhead		615,600			760,445			144,845	U
Total variable costs	$	1,485,800		$	1,848,265		$	362,465	U
Contribution margin	$	1,934,200		$	1,756,235		$	177,965	U

Justine Madison, president of the company, is disappointed with the results. Despite a sizable increase in the number of cookies sold, the products expected contribution to the overall profitability of the firm decreased. Madison has asked Blair to identify the reason why the contribution margin decreased. Blair has gathered the following information to help in her analysis of the decrease.

Usage Report for February
Cost Item	Quantity			Actual Cost
Direct materials:
Cookie mix		4,125,000	oz.	$	82,500
Milk chocolate		2,410,000	oz.		482,000
Almonds		420,000	oz.		210,000
Direct labor:
Mixing		405,000	min.		97,200
Baking		720,400	min.		216,120
Variable overhead					760,445
Total variable costs				$	1,848,265

rev: 10_07_2015_QC_CS-27359, 10_08_2015_QC_CS-27359

Case 11-55 Part 1

Required:
1.	Prepare a new contribution report for February, in which:

The static budget column in the contribution report is replaced with a flexible budget column.

The variances in the contribution report are recomputed as the difference between the flexible budget and actual columns. 2. What is the total contribution margin in the flexible budget column 3. What is the total variance between the flexible budget contribution margin and the actual contribution margin in the new report prepared for part (1)? Calculate the total contribution margin variance by computing the following variances. (Assume that all materials are used in the month of purchase.). (Do not round your intermediate calculations. Indicate the effect of each variance by selecting "Favorable" or "Unfavorable". Select "None" and enter "0" for no effect (i.e., zero variance).)

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