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Lexi Belcher picked up the monthly report that Irvin Santamaria left on her desk. She smiled as her eyes went straight to the bottom line of the report and saw the favorable variance for operating income, confirming her decision to push the workers to get those last 320 cases off the production line before the end of the month. But as she glanced over the rest of numbers, Lexi couldn't help but wonder if there were errors in some of the line items. She was puzzled at how most of the operating expenses could be higher than the budget since she had worked hard to manage the production line to improve efficiency and reduce costs. Yet the report, shown below, showed a different story. Actual Budget Variance Cases produced and sold 9.980 320 Favorable Sales revenue $2,015,000 $67,400 Favorable Less variable expenses Direct material 577,300 16,350 Unfavorable Direct labor 281,500 8,800 Unfavorable Variable manufacturing overhead 221,000 2.600 Unfavorable Variable selling expenses 112,600 1,200 Unfavorable Variable administrative expenses 43,300 350 Unfavorable Total variable expense 1,235,700 29,300 Unfavorable Contribution margin 779,300 38,100 Favorable Less fixed expenses Fixed manufacturing overhead 137,800 4,800 Favorable Fixed selling expenses 84,800 1,350 Unfavorable Fixed administrative expenses 153,500 1,500 Unfavorable Total fixed expense 376,100 (1,950) Favorable Operating income $403,200 $40,050 Favorable 10,300 $2,082,400 593,650 290,300 223,600 113,800 43,650 1,265,000 817,400 133,000 86,150 155,000 374,150 $443,250 Lexi picked up the phone and called Irvin. "Irvin, I don't get it. We beat the budgeted operating income for the month, but look at all the unfavorable variances on the operating costs. Can you help me understand what's going on?" "Let me look into it and I'll get back to you, Irvin replied. Irvin gathered the following additional information about the month's performance. Direct materials purchased: 55,800 pounds at a total of $644,490 Direct materials used: 51,300 pounds Direct labor hours worked: 23,160 at a total cost of $260,186 . Machine hours used: 52,000 Irvin also found the standard cost card for a case of product. Standard Price Direct materials $11.55 per pound Direct labor $11.35 per DLH Variable overhead $4.35 per MH Fixed overhead $2.20 per MH Total standard cost per case Standard Quantity 5.00 pounds 2.20 DLH 5 MH 5 MH Standard Cost $57.75 24.97 21.75 11.00 $115.47