Flexible Budgeting and Variance Analysis Custom Essay

P7-2A Flexible Budgeting and Variance Analysis

Belgian 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 $4.50

Sugar 8 lbs 12 lbs $0.65

Standard labor time 0.35 hrs 0.40 hr

Dark Chocolate Light Chocolate

Planned production 4,200 cases 10,500 cases

Standard labor rate $14.50 per hr $14.50 per hr

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

Dark Chocolate Light Chocolate

Actual production (cases) 4,000 11,000

Actual price per pound Actual pounds purchased and used

Cocoa $4.60 117,500

Sugar $0.60 160,000

Actual labor rate Actual labor hours used

Dark Chocolate $13.90 per hr 1,270

Light Chocolate $14.90 per hr 4,500

Required:

1. 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.

Use the minus sign to enter favorable variances as negative numbers.

a. Direct materials price variance:

Direct materials quantity variance:

Total direct materials cost variance:

b. Direct labor rate variance:

Direct labor time variance:

Total direct labor cost variance:

2. Why are the standard amounts in part (1) based on the actual production for the year instead of the planned production for the year?