{"id":470,"date":"2015-10-10T14:46:55","date_gmt":"2015-10-10T14:46:55","guid":{"rendered":"https:\/\/courses.candelalearning.com\/managacct2x10xmaster\/?post_type=chapter&#038;p=470"},"modified":"2016-01-01T14:06:24","modified_gmt":"2016-01-01T14:06:24","slug":"variance-summary","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-managacct\/chapter\/variance-summary\/","title":{"raw":"8.5 Variance Summary","rendered":"8.5 Variance Summary"},"content":{"raw":"See below for a\u00a0summary of the six variances from standard discussed in this chapter.\r\n<table style=\"background-color: #c9f2d7\">\r\n<tbody>\r\n<tr>\r\n<td>Materials price variance =<\/td>\r\n<td>\n\n(Actual price \u2013 Standard price) x Actual quantity <strong>purchased<\/strong> OR\r\n\r\n(Actual Price x Actual Qty <strong>purch<\/strong>) - (Standard Price x Actual Quantity <strong>purchased<\/strong>)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Materials usage variance =<\/td>\r\n<td>\n\n(Actual quantity <strong>used<\/strong> \u2013 Standard quantity allowed) x Standard price OR\r\n\r\n(Actual qty <strong>used<\/strong> x Standard price) - (Standard Qty allowed x Standard price)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Labor rate variance =<\/td>\r\n<td>\n\n(Actual rate \u2013 standard rate) x Actual hours worked OR\r\n\r\n(Actual rate x Actual hours worked) - (Standard rate x Actual hours worked)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Labor efficiency variance =<\/td>\r\n<td>\n\n(Actual hours worked \u2013 standard hours allowed) x Standard rate OR\r\n\r\n(Actual hours worked x Standard Rate) - (Standard hours allowed x Standard Rate)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable OH Spending variance =<\/td>\r\n<td>\n\n(Actual variable OH rate \u2013 standard variable OH rate) x Actual OH base OR\r\n\r\n(Actual variable OH rate x Actual OH base) - (Std variable OH rate x Actual OH base)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Variable OH Efficiency variance =<\/td>\r\n<td>\n\n(Actual OH base \u2013 standard OH base) x Standard variable OH rate OR\r\n\r\n(Actual OH base x Standard variable OH rate) - (Std OH base x Std variable OH rate)<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Fixed OH variance =<\/td>\r\n<td>Actual fixed overhead - Budgeted fixed overhead<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\nRemember, variances are expressed at the absolute values meaning we do not show negative or positive numbers.\u00a0 We express variances in terms of FAVORABLE or UNFAVORABLE and negative is not always bad or unfavorable and positive is not always good or favorable.\r\n\r\nKeep these in mind:\r\n<ul>\r\n\t<li>When actual materials are more than standard (or budgeted), we have an UNFAVORABLE variance.<\/li>\r\n\t<li>When actual materials are less than the standard, we have a FAVORABLE variance.<\/li>\r\n\t<li>Same rule applies for direct labor.\u00a0 If actual direct labor (either hours or dollars) is more than the standard, we have an UNFAVORABLE variance.\u00a0 A FAVORABLE variance occurs when actual direct labor is less than the standard.<\/li>\r\n<\/ul>\r\n<h2>Accounting in the Headlines<\/h2>\r\n<h4 class=\"title\">How will the increasing cost of chocolate impact Hershey\u2019s\u00a0variances?<\/h4>\r\n<p class=\"post-meta\">The price of chocolate had been predicted to increase rapidly beginning in late 2013 and continue into 2014, according to the <a title=\"Wall Street Journal, &quot;Chocolate Prices Soar in Dark Turn,&quot; September 22, 2013\" href=\"http:\/\/online.wsj.com\/article\/SB10001424052702303983904579091120112729130.html#printMode\" target=\"_blank\">Wall Street Journal<\/a>. \u00a0The price increase is due to multiple factors, including a shortage of cocoa beans and an increase in demand by consumers.<\/p>\r\n\r\n<div class=\"entry\">\r\n\r\nAlthough the demand for all chocolate has been increasing, consumer tastes have been gradually shifting towards dark chocolate because of its\u00a0<a title=\"health benefits of dark chocolate\" href=\"http:\/\/www.mayoclinic.com\/health\/healthy-chocolate\/AN02060\" target=\"_blank\">purported health benefits<\/a>. \u00a0Dark chocolate uses more cocoa beans per ounce than milk chocolate.\r\n\r\nSo what does the predicted price increase mean for companies that use chocolate and\/or cocoa beans?\r\n\r\n<strong>Questions<\/strong>\r\n\r\n1. The Hershey Company produces several products that use chocolate and\/or cocoa beans. \u00a0Which of the following variances for Hershey\u2019s chocolate products are likely to be impacted by the projected price increase in the cost of chocolate? \u00a0Explain your answer.\r\n<ul>\r\n\t<li>a. \u00a0Direct material price variance<\/li>\r\n\t<li>b. Direct material quantity variance<\/li>\r\n\t<li>c. Direct labor rate variance<\/li>\r\n\t<li>d. Direct labor efficiency variance<\/li>\r\n<\/ul>\r\n2. \u00a0<a href=\"http:\/\/www.hersheys.com\/pure-products\/details.aspx?id=3131&amp;name=HERSHEYS+SPECIAL+DARK+Mildly+Sweet+Chocolate+Bar&amp;f=0\" target=\"_blank\">Hershey\u2019s Special Dark Mildly Sweet Chocolate Bar<\/a> and <a href=\"http:\/\/www.hersheys.com\/pure-products\/details.aspx?id=2746&amp;name=HERSHEYS+Milk+Chocolate+with+Almonds+Bar&amp;f=0\" target=\"_blank\">Hershey\u2019s Milk Chocolate with Almonds Bar<\/a> both weigh 1.45 ounces. \u00a0Which bar\u2019s variances are more likely to be impacted by the increase in the cost of chocolate? Explain your reasoning.\r\n\r\n3. Since The Hershey Company\u2019s management knows that the price of chocolate is likely to increase, it might revise one or more of its standards. Which standard(s) would be impacted? \u00a0What would be the benefit of revising the standard(s) before the end of the reporting period?\r\n\r\n<\/div>","rendered":"<p>See below for a\u00a0summary of the six variances from standard discussed in this chapter.<\/p>\n<table style=\"background-color: #c9f2d7\">\n<tbody>\n<tr>\n<td>Materials price variance =<\/td>\n<td>\n<p>(Actual price \u2013 Standard price) x Actual quantity <strong>purchased<\/strong> OR<\/p>\n<p>(Actual Price x Actual Qty <strong>purch<\/strong>) &#8211; (Standard Price x Actual Quantity <strong>purchased<\/strong>)<\/td>\n<\/tr>\n<tr>\n<td>Materials usage variance =<\/td>\n<td>\n<p>(Actual quantity <strong>used<\/strong> \u2013 Standard quantity allowed) x Standard price OR<\/p>\n<p>(Actual qty <strong>used<\/strong> x Standard price) &#8211; (Standard Qty allowed x Standard price)<\/td>\n<\/tr>\n<tr>\n<td>Labor rate variance =<\/td>\n<td>\n<p>(Actual rate \u2013 standard rate) x Actual hours worked OR<\/p>\n<p>(Actual rate x Actual hours worked) &#8211; (Standard rate x Actual hours worked)<\/td>\n<\/tr>\n<tr>\n<td>Labor efficiency variance =<\/td>\n<td>\n<p>(Actual hours worked \u2013 standard hours allowed) x Standard rate OR<\/p>\n<p>(Actual hours worked x Standard Rate) &#8211; (Standard hours allowed x Standard Rate)<\/td>\n<\/tr>\n<tr>\n<td>Variable OH Spending variance =<\/td>\n<td>\n<p>(Actual variable OH rate \u2013 standard variable OH rate) x Actual OH base OR<\/p>\n<p>(Actual variable OH rate x Actual OH base) &#8211; (Std variable OH rate x Actual OH base)<\/td>\n<\/tr>\n<tr>\n<td>Variable OH Efficiency variance =<\/td>\n<td>\n<p>(Actual OH base \u2013 standard OH base) x Standard variable OH rate OR<\/p>\n<p>(Actual OH base x Standard variable OH rate) &#8211; (Std OH base x Std variable OH rate)<\/td>\n<\/tr>\n<tr>\n<td>Fixed OH variance =<\/td>\n<td>Actual fixed overhead &#8211; Budgeted fixed overhead<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>Remember, variances are expressed at the absolute values meaning we do not show negative or positive numbers.\u00a0 We express variances in terms of FAVORABLE or UNFAVORABLE and negative is not always bad or unfavorable and positive is not always good or favorable.<\/p>\n<p>Keep these in mind:<\/p>\n<ul>\n<li>When actual materials are more than standard (or budgeted), we have an UNFAVORABLE variance.<\/li>\n<li>When actual materials are less than the standard, we have a FAVORABLE variance.<\/li>\n<li>Same rule applies for direct labor.\u00a0 If actual direct labor (either hours or dollars) is more than the standard, we have an UNFAVORABLE variance.\u00a0 A FAVORABLE variance occurs when actual direct labor is less than the standard.<\/li>\n<\/ul>\n<h2>Accounting in the Headlines<\/h2>\n<h4 class=\"title\">How will the increasing cost of chocolate impact Hershey\u2019s\u00a0variances?<\/h4>\n<p class=\"post-meta\">The price of chocolate had been predicted to increase rapidly beginning in late 2013 and continue into 2014, according to the <a title=\"Wall Street Journal, &quot;Chocolate Prices Soar in Dark Turn,&quot; September 22, 2013\" href=\"http:\/\/online.wsj.com\/article\/SB10001424052702303983904579091120112729130.html#printMode\" target=\"_blank\">Wall Street Journal<\/a>. \u00a0The price increase is due to multiple factors, including a shortage of cocoa beans and an increase in demand by consumers.<\/p>\n<div class=\"entry\">\n<p>Although the demand for all chocolate has been increasing, consumer tastes have been gradually shifting towards dark chocolate because of its\u00a0<a title=\"health benefits of dark chocolate\" href=\"http:\/\/www.mayoclinic.com\/health\/healthy-chocolate\/AN02060\" target=\"_blank\">purported health benefits<\/a>. \u00a0Dark chocolate uses more cocoa beans per ounce than milk chocolate.<\/p>\n<p>So what does the predicted price increase mean for companies that use chocolate and\/or cocoa beans?<\/p>\n<p><strong>Questions<\/strong><\/p>\n<p>1. The Hershey Company produces several products that use chocolate and\/or cocoa beans. \u00a0Which of the following variances for Hershey\u2019s chocolate products are likely to be impacted by the projected price increase in the cost of chocolate? \u00a0Explain your answer.<\/p>\n<ul>\n<li>a. \u00a0Direct material price variance<\/li>\n<li>b. Direct material quantity variance<\/li>\n<li>c. Direct labor rate variance<\/li>\n<li>d. Direct labor efficiency variance<\/li>\n<\/ul>\n<p>2. \u00a0<a href=\"http:\/\/www.hersheys.com\/pure-products\/details.aspx?id=3131&amp;name=HERSHEYS+SPECIAL+DARK+Mildly+Sweet+Chocolate+Bar&amp;f=0\" target=\"_blank\">Hershey\u2019s Special Dark Mildly Sweet Chocolate Bar<\/a> and <a href=\"http:\/\/www.hersheys.com\/pure-products\/details.aspx?id=2746&amp;name=HERSHEYS+Milk+Chocolate+with+Almonds+Bar&amp;f=0\" target=\"_blank\">Hershey\u2019s Milk Chocolate with Almonds Bar<\/a> both weigh 1.45 ounces. \u00a0Which bar\u2019s variances are more likely to be impacted by the increase in the cost of chocolate? Explain your reasoning.<\/p>\n<p>3. Since The Hershey Company\u2019s management knows that the price of chocolate is likely to increase, it might revise one or more of its standards. Which standard(s) would be impacted? \u00a0What would be the benefit of revising the standard(s) before the end of the reporting period?<\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-470\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective.. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. Hermanson, Georgia State University.. <strong>Provided by<\/strong>: Endeavour International Corporation. <strong>Project<\/strong>: The Global Text Project.. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Specific attribution<\/div><ul class=\"citation-list\"><li>How will the increasing cost of chocolate impact Hersheyu2019s variances?. <strong>Authored by<\/strong>: Dr. Wendy Tietz, CPA, CMA, CGMA. <strong>Located at<\/strong>: <a target=\"_blank\" href=\"http:\/\/www.accountingintheheadlines.com\">http:\/\/www.accountingintheheadlines.com<\/a>. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by-nc\/4.0\/\">CC BY-NC: Attribution-NonCommercial<\/a><\/em><\/li><\/ul><\/div>\n\t\t\t\t\t\t <\/div>\n\t\t\t\t\t <\/div>\n\t\t\t <\/section>","protected":false},"author":1195,"menu_order":6,"template":"","meta":{"_candela_citation":"[{\"type\":\"cc-attribution\",\"description\":\"How will the increasing cost of chocolate impact Hersheyu2019s variances?\",\"author\":\"Dr. Wendy Tietz, CPA, CMA, CGMA\",\"organization\":\"\",\"url\":\"www.accountingintheheadlines.com\",\"project\":\"\",\"license\":\"cc-by-nc\",\"license_terms\":\"\"},{\"type\":\"cc\",\"description\":\"Accounting Principles: A Business Perspective.\",\"author\":\"James Don Edwards, University of Georgia & Roger H. Hermanson, Georgia State University.\",\"organization\":\"Endeavour International Corporation\",\"url\":\"\",\"project\":\"The Global Text Project.\",\"license\":\"cc-by\",\"license_terms\":\"\"}]","CANDELA_OUTCOMES_GUID":"","pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[],"contributor":[],"license":[],"class_list":["post-470","chapter","type-chapter","status-publish","hentry"],"part":20,"_links":{"self":[{"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/pressbooks\/v2\/chapters\/470","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/wp\/v2\/users\/1195"}],"version-history":[{"count":5,"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/pressbooks\/v2\/chapters\/470\/revisions"}],"predecessor-version":[{"id":917,"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/pressbooks\/v2\/chapters\/470\/revisions\/917"}],"part":[{"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/pressbooks\/v2\/parts\/20"}],"metadata":[{"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/pressbooks\/v2\/chapters\/470\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/wp\/v2\/media?parent=470"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/pressbooks\/v2\/chapter-type?post=470"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/wp\/v2\/contributor?post=470"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/courses.lumenlearning.com\/suny-managacct\/wp-json\/wp\/v2\/license?post=470"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}