Swiss Chocolate's U.S. division is experiencing an increase in demand for the month of October due to the upcoming holiday season. The following fact pattern forms the basis for the static budget:
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Swiss Chocolate Manufacturing Company
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Variable costs total
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Fixed costs total
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Raw materials
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$ 200,000
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Direct manufacturing labor
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$ 100,000
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Indirect manufacturing labor
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$ 52,500
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Factory insurance and utilities
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$ 31,500
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Depreciation - machinery and factory
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$ 38,500
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Repairs and maintenance - factory
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$ 14,000
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Selling, marketing and distribution expenses
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$ 20,000
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$ 40,000
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General and administrative expenses
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$ 60,000
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Variable cost and volume data
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Milk chocolate
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Raw materials = 0.25 lbs x $2.00/lb.
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$ 0.50
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Direct labor = 0.025 hr x $10/hr.
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$ 0.25
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Volume in units
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400,000
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Sales per unit are $2.65.
Required:
- In good form, prepare the static budget operating income in contribution format.
- Suppose sales demand increases to 500,000 units for October. Prepare the flexible budget for October in contribution format.
- Compute and reconcile the sales volume variance. Indicate whether the variance is favorable or unfavorable.
- Presume the following:
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Total direct costs incurred for October
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Raw materials = 135,000 lbs. used
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$ 300,000
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Direct labor = 12,000 hrs. incurred
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$ 112,600
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Volume in units
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515,000
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Using the three-pronged method to present your calculations, compute the direct materials price variance, the direct materials efficiency variance, the labor price variance, and the labor efficiency variance. Indicate whether these are favorable or unfavorable.
- Appraise the outcome of the direct cost variance and give one possible explanation for each of the variances. Be sure that your explanation is interrelated and provides a complete picture of performance for the Swiss Chocolate Manufacturing Company for October.
Your paper should meet the following requirements:
- Formatted according to the CSU-Global Guide to Writing and APA Requirements
- Include two or three outside references to support your research and conclusions