ACC 202 Module 6 Variance Analysis Assignment example

When Favorable Is Not Good: A November Variance Analysis for a Composite Candle Maker

[Student Name]

Southern New Hampshire University

ACC 202: Managerial Accounting

Module Six Assignment

[Instructor Name]

[Date]

The organization, setting and figures below are a composite written as a model document. No real employer, client, colleague or patient is described.

When Favorable Is Not Good: A November Variance Analysis for a Composite Candle Maker

Standards and the Flexible Budget

Cedarline Candle Co. (the project's composite candle maker) sets standards for its main materials. Each candle should use 0.62 pounds of soy wax at 5.00 dollars a pound, or 3.10 dollars, and one glass jar at 2.75 dollars. The November budget planned production of 3,500 candles, but the company actually produced 3,450. Comparing actual materials cost with the budget for 3,500 candles would credit the company with savings simply for making fewer candles, so the analysis uses a flexible budget: the standard cost allowed for the 3,450 candles actually produced (Franklin et al., 2019). The standard wax allowed is 3,450 times 0.62, or 2,139 pounds, costing 10,695 dollars, and the standard jar cost allowed is 3,450 jars, or 9,487.50 dollars.

Wax Variances

In November Cedarline used 2,260 pounds of wax, bought from a new supplier at 4.80 dollars a pound, for an actual cost of 10,848 dollars. To get the price variance, multiply the gap between actual and standard price by the pounds actually used: 4.80 minus 5.00 dollars, times 2,260 pounds, or 452 dollars favorable. The quantity variance is the difference between actual and standard quantity times the standard price: 2,260 minus 2,139 pounds, times 5.00 dollars, or 605 dollars unfavorable. The net wax variance is 153 dollars unfavorable, which is the difference between the actual cost of 10,848 dollars and the flexible budget of 10,695 dollars.

Jar Variances

The jar supplier added a fuel surcharge, raising the price to 2.82 dollars, and the workshop used 3,505 jars for 3,450 finished candles because 55 were chipped or cracked. The price variance is 2.82 minus 2.75 dollars, times 3,505 jars, or about 245 dollars unfavorable. The quantity variance is 3,505 minus 3,450 jars, times 2.75 dollars, or about 151 dollars unfavorable. Together, jars cost about 397 dollars more than the flexible budget allowed.

Fixed Cost and Sales Volume Variances

Budgeted fixed costs for November, including the 1,400 dollar seasonal step, were 17,530 dollars. Actual fixed costs were 18,210 dollars, a spending variance of 680 dollars unfavorable, made up of an extra week of rented curing space at 420 dollars and higher electricity charges of 260 dollars. On the sales side, Cedarline sold 3,310 candles against a budget of 3,400. At the standard contribution margin of 10.80 dollars, the 90-candle shortfall produced a sales volume variance of 972 dollars unfavorable.

Summary of Variances

Table 1 collects the variances.

Table 1

November 2025 Variance Summary, Cedarline Candle Co.

Note. Composite figures. Jar variances are rounded to the dollar.

Why the Variances Happened

The wax variances must be read together. The new supplier's wax was 20 cents a pound cheaper, producing the favorable price variance, but the production lead reports that it has a lower melting point and shrinks more as it cures, so pourers had to top up more candles and discard more that sank unevenly. That extra wax is the 121 pounds behind the unfavorable quantity variance. The 452 dollar saving on price was more than consumed by 605 dollars of extra usage, so the cheaper wax made each candle more expensive. The purchasing decision looked good in the purchasing department's report and bad in the production report, which is exactly the pattern that variance analysis is meant to reveal (Datar & Rajan, 2021).

The jar variances have different causes. The price variance came from the supplier's surcharge, which is outside the company's control in the short run. The quantity variance, 55 damaged jars, is within its control: the holiday volume led the seasonal coordinator to stack cases higher in the temporary curing space. The fixed cost overrun reflects a decision to keep the rented space a week longer because curing took longer with the new wax, another cost of the supplier change. The sales volume shortfall came mainly from one retailer that delayed a reorder into December, so it may reverse next month.

Which Variances Deserve Attention

Not every variance is worth a manager's time. Cedarline follows a management-by-exception rule: any variance larger than 5 percent of its flexible budget amount, or larger than 500 dollars, is investigated, and smaller ones are simply noted. By that rule, the wax quantity variance of 605 dollars, about 5.7 percent of the wax flexible budget, clearly qualifies, and so does the sales volume variance. The wax price variance of 452 dollars falls just under the dollar threshold, but it is investigated anyway because it is directly linked to a variance that qualifies; examining one without the other would produce the wrong conclusion. The jar price variance, about 2.6 percent of the jar budget, would normally be noted and left alone, but the owner asked for an explanation because it signals a supplier pricing change that will recur. The fixed cost variance of 680 dollars is about 3.9 percent of budgeted fixed costs but exceeds the dollar threshold. A rule like this keeps attention on the few items that matter, but it should be applied with judgment: small variances that appear every month in the same direction can indicate that a standard is out of date, and that is worth correcting even if no single month crosses the line.

Recommended Actions

Cedarline should return to its original wax supplier for the rest of the season, since the cheaper wax raised total cost and delayed curing; the purchasing and production staff should agree on wax specifications before any future change of supplier. It should ask the jar supplier whether the surcharge will continue and, if so, update the jar standard so that future variances reflect performance rather than a known price change. It should limit stacking height in the temporary curing space and track breakage weekly. The sales volume variance does not call for action yet, but the owner should confirm the delayed retail order. Finally, because variances should prompt investigation rather than blame, the analysis should be shared with the purchasing and production staff together, since the largest problem this month crossed the line between their jobs (Hansen et al., 2003).

References

Datar, S. M., & Rajan, M. V. (2021). Horngren's cost accounting: A managerial emphasis (17th ed.). Pearson.

Franklin, M., Graybeal, P., & Cooper, D. (2019). Principles of accounting, volume 2: Managerial accounting. OpenStax. https://openstax.org/details/books/principles-managerial-accounting

Hansen, S. C., Otley, D. T., & Van der Stede, W. A. (2003). Practice developments in budgeting: An overview and research perspective. Journal of Management Accounting Research, 15(1), 95-116. https://doi.org/10.2308/jmar.2003.15.1.95