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 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. Master Actual Budget Variance Cases produced and sold 10,300 10,000 300 F Sales revenue $2,080,600 $2,000,000 $80,600 F Variable Costs Direct material 593,160 575,000 18,160 U Direct labor 290,175 280,000 10,175 U Variable manufacturing overhead 231,768 225,000 6,768 U Variable selling expenses 112,340 110,000 2,340 U Variable administrative expenses 43,285 42,000 1,285 U Total variable expenses 1,270,545 1,232,000 38,728 U Contribution margin 809,872 768,000 41,872 F Fixed manufacturing overhead 122,000 125,000 3,000 F Fixed selling expenses 86,280 85,000 1,280 U Fixed administrative expenses 149,000 148,000 1,000 U Total fixed expenses 357,280 358,000 720 F Operating income $452,775 $410,000 $41,152 F 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: 55,000 pounds at a total of $628,650 Direct materials used: 51,200 pounds Direct labor hours worked: 26,500 Machine hours used: 52,200