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

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 Variable overhead > > Fixed overhead Total $ $