| How does the rising price of cocoa impact The Hershey Company’s variances?Accounting in the Headlines

In the spring of 2024, the cost of cocoa rose substantially. Within the span of 12 months, the price of tripled. This surge in price is largely the result of bean diseases that have destroyed crops on a vast scale in Ghana and Ivory Coast, which together supply more than half of the world’s supply of cacao (the raw material used to make cocoa). Some of these bean diseases are due to unusual weather patterns, such as many months of wet weather.

The Hershey Company, a brand known for its chocolate candy bars, has been impacted by these surging cocoa prices. This year, cocoa prices now account for 20% of Hershey’s cost-of-goods-sold. Hershey’s iconic milk chocolate bar, commonly known as the “Hershey Bar,” contains about 11% cacao.  

See the following tutorial video on variance analysis at this link and then answer the questions following the video.

Discussion Questions

1. What would be the most likely impact, if any, on the direct material price variance for a Hershey bar from the increase in the cost of cocoa?
2. What would be the impact, if any, on the direct material quantity variance for a Hershey bar from the increase in the cost of cocoa?
3. What would be the impact, if any, on the direct labor rate variance for a Hershey bar from the increase in the cost of cocoa?
4. What would be the impact, if any, on the direct labor efficiency variance for a Hershey bar from the increase in the cost of cocoa?
5. How might the managers of The Hershey Company deal with the increase in the cost of cocoa?