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 Chocolate		Light Chocolate		Standard Price per Pound
Cocoa	10 lbs.		7 lbs.		$5.30
Sugar	8 lbs.		12 lbs.		0.60
Standard labor time	0.4 hr.		0.5 hr.

	Dark Chocolate		Light Chocolate
Planned production	4,400 cases		10,600 cases
Standard labor rate	$13.00 per hr.		$13.00 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)	4,200		11,000
	Actual Price per Pound		Actual Pounds Purchased and Used
Cocoa	$5.40		119,600
Sugar	0.55		161,500
	Actual Labor Rate		Actual Labor Hours Used
Dark chocolate	$12.50 per hr.		1,530
Light chocolate	13.50 per hr.		5,640

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. If there is no variance, enter a zero.

a.	Direct materials price variance	$	Unfavorable
	Direct materials quantity variance	$	Unfavorable
	Total direct materials cost variance	$	Unfavorable
b.	Direct labor rate variance	$	Unfavorable
	Direct labor time variance	$	Favorable
	Total direct labor cost variance	$	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 f

Answer 1

Please note the following :-

question 2 is not complete in the question asked by you.

first two images are a better representation of the question because the question you have posted has alignment issues.

full forms -

SP - Standard price

SQ - Standard quantity

TSC - Total Standard Cost

AQ - Actual Quantity

AP - Actual Price

TAC - Total Actual Cost

SH - Standard Hours

SR - Standard Rate

AH- Actual Hours

AR- Actual Rate

Note :- It has been assumed that actual quantity used is same for dark chocolate and light chocolate. Therefore 119600 lbs cocoa is used for dark chocolate and 119600 lbs cocoa is used for light chcoclate. Similarly 161500 lbs sugar is used for dark chocolate and 161500 sugar is used for light chocolate. Alternatively it can be assumed that 119600 lbs cocoa used includes quantity for dark as well as light chocolate . In that case Column AQ data will change as follows and rest of the question will be solved accordingly:

AQ for dark chocolate:

Cocoa (119600/15200)* 4200 = 33047.37

Sugar (161500/15200)* 4200 = 44625

AQ for light chocolate :

Cocoa (119600/15200)* 11000 = 86552.63

Sugar (161500/15200)* 11000 = 116875

Note : 15200 = 11000+4200 (actual cases produced)

Imp : It is best adviced to follow alternative approach in my opinion.

Please note that your question has a small mistake. In the question we are asked to calculate cost variances. If a cost variance is negative it cannot be written as favourable because negative variance means actual cost is more than what it should have been as per the standards - which is bad for us and therefore adverse and not favourable. Similarly a positive variance is good for us and therefore it will be favourable.