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6-30 Comprehensive flexible budgets and variance analysis (LO 1, 2,3,4,5 6, 7, 8) 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 250 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. ActualBudgetVariance Cases produced and sold Sales revenue Less variable expenses 10,250 10,000 $1,870,000 250 F $77,500 F $1,947,500 Direct material Direct labor Variable manufacturing overhead Variable selling expenses Variable administrative expenses 561,000 267,650 285,012 550,000 260,000 280,000 90,000 40,000 1,220,000 650,000 11,000 U 7,650 U 5,012 U 3,130 U 1,740 U 28,532 U 48,968 F 93,130 41,740 Total variable expenses Contribution margin Less fixed expenses 1,248,532 698,968 Fixed manufacturing overhead Fixed selling expenses Fixed administrative expenses 111,000 110,000 70,000 130,000 310,000 340,000 1,000 U (500 F) (200 F) 300 U $48,668 F 69,500 129,800 310,300 388,668 Total fixed expenses Operating income 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: 102,000 pounds at a total of $561,000 Direct materials used: 102,000 pounds Direct labor hours worked: 26,500 at a total cost of $267,650 Machine hours used: 40,950 Irvin also found the standard cost card for a case of product