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 290 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 10,250 9,960 Variance 290 Favorable $77,200 Favorable $1.939,700 $1.862,500 Cases produced and sold Sales revenue Less variable expenses Direct material Direct labor 558,756 547,800 266,579 258,960 283,872 278,880 92,757 89,640 10,956 Unfavorable 7,619 Unfavorable 4,992 Unfavorable 3,117 Unfavorable 1,733 Unfavorable 28,417 Unfavorable 48,783 Favorable 41,573 39,840 1.243.537 1.215.120 696,163 647,380 Variable manufacturing overhead Variable selling expenses Variable administrative expenses Total variable expense Contribution margin Less fixed expenses Fixed manufacturing overhead Fixed selling expenses Fixed administrative expenses Total fixed expense Operating income 110,556 109,560 69,222 69,720 129,281 129,480 996 Unfavorable (498 Favorable) (199 Favorable) 299 Unfavorable $48,484 Favorable 309,059 308,760 $387,104 $338,620 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: 101,592 pounds at a total of $558,756 Direct materials used: 101,592 pounds Direct labor hours worked: 26,394 at a total cost of $266,579 Machine hours used: 40,786 Irvin also found the standard cost card for a case of product. Standard Cost $55 Standard Price Standard Quantity $5.50 per pound 10 pounds $10 per DLH 2.59 DLH $7 per MH 4 MH $2.74 per MH 4 MH Direct materials Direct labor Variable overhead Fixed overhead Total standard cost per case 25.90 28.00 10.96 $119.86 (a-b) Calculate the direct material price variance and direct material quantity variance for the month. (If variance is zero, select "Not Applicable" and enter for the amounts.) $ Direct material price variance Direct material quantity variance $ (c-d) Calculate the direct labor rate variance and direct labor efficiency variance for the month. (Round answers to decimal places, eg. 1,525. If variance is zero, select "Not Applicable" and enter Ofor the amounts.) $ Direct labor rate variance $ Direct labor efficiency variance $ (e-f) Calculate the variable overhead spending variance and variable overhead efficiency variance for the month. (If variance is zero, select "Not Applicable" and enter for the amounts.) Variable overhead spending variance $ Variable overhead efficiency variance $ (z) Calculate the fixed overhead spending variance for the month. (If variance is zero, select "Not Applicable" and enter for the amounts.) Fixed overhead spending variance $ e Textbook and Media 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 for the amounts.) Price/Rate/Spending Variance Quantity/Efficiency Variance Direct materials $ > Fixed overhead > > Total $ eTextbook and Media Based on your review of the performance report you prepared, do you think Lexi did a good job of controlling production expenses during the month? e Textbook and Media
