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Flexible Budgeting and Variance Analysis

Sharon$$s Delights Chocolate Company makes dark chocolate and light chocolate. Both products require cocoa and sugar. The following planning information has been made available:

Line Item Description Standard Amount per Case

Dark Chocolate Standard Amount per Case

Light Chocolate Standard Price per Pound

Cocoa $9$ lbs$.6$ lbs$.$ $$4\mathrm{.}30$

Sugar $7$ lbs$.11$ lbs$.0\mathrm{.}60$

Standard labor time $0\mathrm{.}3$ hr$.0\mathrm{.}4$ hr$.$

Line Item Description Dark Chocolate Light Chocolate

Planned production $4,800$ cases $13,900$ cases

Standard labor rate $$15\mathrm{.}50$ per hr$.$ $$15\mathrm{.}50$ per hr$.$

Sharon$$s Delights Chocolate Company does not expect there to be any beginning or ending inventories of cocoa or sugar. At the end of the budget year, Sharon$$s Delights Chocolate Company had the following actual results:

Line Item Description Dark Chocolate Light Chocolate

Actual production $($cases$)4,60014,500$

Line Item Description Actual Price per Pound Actual Quantity Purchased and Used

Cocoa $$4\mathrm{.}40129,000$

Sugar $0\mathrm{.}55186,900$

Line Item Description Actual Labor Rate Actual Labor Hours Used

Dark chocolate $$15\mathrm{.}10$ per hr$.1,260$

Light chocolate $15\mathrm{.}90$ per hr$.5,940$

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.

a$.$

Line Item Description Amount variance

Direct materials price variance $fill in the blank $1$

Unfavorable

Direct materials quantity variance $fill in the blank $3$

Favorable

Total direct materials cost variance $fill in the blank $5$

Unfavorable

b$.$

Line Item Description Amount variance

Direct labor rate variance $fill in the blank $7$

Unfavorable

Direct labor time variance $fill in the blank $9$

Unfavorable

Total direct labor cost variance $fill in the blank $11$

Unfavorable

$2.$ The variance analyses should be based on the fill in the blank $1$ of $4$

standard

amounts at fill in the blank $2$ of $4$

actual

volumes. The budget must flex with the volume changes. If the fill in the blank $3$ of $4$

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 fill in the blank $4$ of $4$

actual

production. In this way, spending from volume changes can be separated from efficiency and price variances.

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