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 couldnt 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		10,250			10,000			250	Favorable
Sales revenue		$1,947,500			$1,870,000			$77,500	Favorable
Less variable expenses
Direct material		561,000			550,000			11,000	Unfavorable
Direct labor		267,650			260,000			7,650	Unfavorable
Variable manufacturing overhead		285,012			280,000			5,012	Unfavorable
Variable selling expenses		93,130			90,000			3,130	Unfavorable
Variable administrative expenses		41,740			40,000			1,740	Unfavorable
Total variable expense		1,248,532			1,220,000			28,532	Unfavorable
Contribution margin		698,968			650,000			48,968	Favorable
Less fixed expenses
Fixed manufacturing overhead		111,000			110,000			1,000	Unfavorable
Fixed selling expenses		69,500			70,000			(500	Favorable)
Fixed administrative expenses		129,800			130,000			(200	Favorable)
Total fixed expense		310,300			310,000			300	Unfavorable
Operating income		$388,668			$340,000			$48,668	Favorable

Lexi picked up the phone and called Irvin. Irvin, I dont 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 whats going on? Let me look into it and Ill get back to you, Irvin replied. Irvin gathered the following additional information about the months 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.

		Standard Price		Standard Quantity		Standard Cost
Direct materials		$5.50 per pound		10 pounds		$55
Direct labor		$10 per DLH		2.60 DLH		26.00
Variable overhead		$7 per MH		4 MH		28.00
Fixed overhead		$2.75 per MH		4 MH		11.00
Total standard cost per case						$120.00

Prepare a performance report that will assist Lexi in evaluating her efforts to control production costs. (If variance is zero, select "Not Applicable" and enter o for the amounts.) Price/Rate/Spending Variance Quantity/Efficiency Variance Direct materials Direct labor x= Variable overhead x= Fixed overhead x= 2x Total