At the monthly management meeting, Leslie Smith, president of Mama FranAc€?cs Fantastic Foods, was reviewing the April budget report with some satisfaction. Ac€A?Our actual results are never exactly what we budget, but I guess if weAc€?cre off by only 2% to 3%, weAc€?cve done a good job forecasting.Ac€?? The report she referred to follows.
April Budget Report
Actual Budget Variance
Sales (in pounds) 450,000 400,000 50,000 F
Revenues $3,555,000 $3,200,000 $355,000 F
Less Variable Expenses
Direct Materials 865,000 580,000 285,000 U
Direct Labor 348,000 336,000 12,000 U
Variable Overhead 750,000 648,000 102,000 U
Total Variable Expenses 1,963,000 1,564,000 399,000 U
Contribution Margin $1,592,000 $1,636,000 ($ 44,000 U)
Nathan Porter, the companyAc€?cs purchasing manager, chimed in. Ac€A?It surprises me that we did as well as we did. I know that chocolate prices went up dramatically last month, so I expected a much larger variance. And we had that little mix-up when we ordered a batch of whole almonds instead of sliced almonds.Ac€??
But controller Ashley Corley looked concerned. Ac€A?Hang on a minute, guys. I donAc€?ct think this budget report gives us the true picture. Let me work on it some more and get back to you.Ac€??
AshleyAc€?cs first step was to track down the following standard cost card for the cookies.
Chocolate Nut Supreme Cookies
Item Quantity Standard Unit Cost Total Cost
Cookie Mix 10 ounces $0.02 per ounce $0.20
Milk chocolate 5 ounces $0.15 per ounce 0.75
Almonds 1 ounce $0.50 per ounce 0.50
Total direct materials $1.45
Mixing 1 minute $14.40 per hour 0.24
Baking 2 minutes $18.00 per hour 0.60
Total direct labor 0.84
Variable Overhead 3 minutes $32.40 per hour 1.62
Total Standard cost per pound $3.91
Ashley also tracked down this additional information about the monthAc€?cs operations.
Item Actual Quantity Used Actual Cost
Cookie Mix 4,650,000 ounces $ 93,000
Milk Chocolate 2,660,000 ounces 532,000
Almonds 480,000 ounces 240,000
Mixing 540,000 minutes 108,000
Baking 800,000 minutes 240,000
Variable overhead 750,000
Total Actual variable costs $1,963,000
Prepare a more informative performance report for the month of April.
Are the results better or worse than Leslie had first thought? Explain your answer
Calculate the direct materials variances for each input, assuming that all materials purchased were used during the month.
Calculate the direct labor variances for April.
Calculate the variable overhead variances for April.
What do you think may have caused the April variances?
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