What impact does the rising cost of avocados have on Wholly Guacamole’s variances?

Photo of Wholly Gaucamole package

The cost of avocados is rising. For example, the price of a 20-pound box of avocados from the state of Avocado prices from Michoacán state in Mexico has jumped to $38 from $21, which is an 81% increase. The current price of avocados is the highest price on record in data that goes back to 1998.

Wholly Guacamole, a brand owned by MegaMex Foods, is made largely from avocados. Wholly Guacamole’s Classic Guacamole is made from more than 98% avocados.

See the following tutorial video on variance analysis and then answer the questions following the video. (You can also access the video at this link.)

Discussion Questions

  1. What would be the impact, if any, on the direct material price variance for Wholly Guacamole’s Classic Guacamole from the increase in the cost of avocados?
  2. What would be the impact, if any, on the direct material quantity variance for Wholly Guacamole’s Classic Guacamole from the increase in the cost of avocados?
  3. What would be the impact, if any, on the direct labor rate variance for Wholly Guacamole’s Classic Guacamole from the increase in the cost of avocados?
  4. What would be the impact, if any, on the direct labor efficiency variance for Wholly Guacamole’s Classic Guacamole from the increase in the cost of avocados?
  5. How might the managers of Wholly Guacamole deal with the increase in the cost of avocados?

About Dr. Wendy Tietz, CPA, CMA, CSCA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Education.

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