Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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

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 300 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

10,300 10,000 300 Favorable

Sales revenue

$2,081,000 $1,945,000 $136,000 Favorable

Less variable expenses

Direct material

592,950 575,900 17,050 Unfavorable

Direct labor

288,900 274,500 14,400 Unfavorable

Variable manufacturing overhead

213,000 212,200 800 Unfavorable

Variable selling expenses

112,400 109,800 2,600 Unfavorable

Variable administrative expenses

42,950 41,900 1,050 Unfavorable

Total variable expense

1,250,200 1,214,300 35,900 Unfavorable

Contribution margin

830,800 730,700 100,100 Favorable

Less fixed expenses

Fixed manufacturing overhead

119,000 122,400 3,400 Favorable

Fixed selling expenses

85,450 84,800 650 Unfavorable

Fixed administrative expenses

141,000 139,500 1,500 Unfavorable

Total fixed expense

345,450 346,700 (1,250) Favorable

Operating income

$485,350 $384,000 $101,350 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: 54,400 pounds at a total of $633,760
Direct materials used: 51,300 pounds
Direct labor hours worked: 27,280 at a total cost of $309,706
Machine hours used: 52,000

Irvin also found the standard cost card for a case of product.

Standard Price

Standard Quantity

Standard Cost

Direct materials

$11.65 per pound 5.00 pounds $58.25

Direct labor

$11.45 per DLH 2.60 DLH 29.77

Variable overhead

$4.15 per MH 5 MH 20.75

Fixed overhead

$2.60 per MH 5 MH 13.00

Total standard cost per case

$121.77

image text in transcribed

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 0 Not Applicable ta 33785 Unfavorable Direct labor 2728 Favorable 5725 Unfavorable Variable overhead 2600 Favorable > 2075 Unfavorable Fixed overhead 3400 Favorable 0 Not Applicable Total $ 8728 Favorable $ 41585 Unfavorable

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Tax Audit Techniques In Cash Based Economies A Practical Guide

Authors: Sheikh Sajjad Hassan

2nd Edition

0955354048, 978-0955354045

More Books

Students also viewed these Accounting questions

Question

Define Management by exception

Answered: 1 week ago

Question

Explain the importance of staffing in business organisations

Answered: 1 week ago

Question

What are the types of forms of communication ?

Answered: 1 week ago

Question

1. Discuss the four components of language.

Answered: 1 week ago

Question

f. What stereotypes were reinforced in the commercials?

Answered: 1 week ago