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 320 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 Actual Budget Variance Cases produced and sold Sales revenue Less variable expenses 320 Favorable 10,250 $1,933,900 9,930 $1,856,900 $77,000 Favorable Direct material Direct labor Variable manufacturing overhead Variable selling expenses Variable administrative expenses 557,073 265,776 283,017 92,478 41,448 1,239,792 694,108 546,150 258,180 278,040 89,370 39,720 1,211,460 645,440 10.923 Unfavorable 7.596 Unfavorable 4,977 Unfavorable 3.108 Unfavorable 1,728 Unfavorable 28,332 Unfavorable Total variable expense Contribution margin Less fixed expenses 48,668 Favorable Fixed manufacturing overhead Fixed selling expenses Fixed administrative expenses 110,223 69,014 128,891 308,128 $385,980 993 Unfavorable 109,230 69,510 129,090 307,830 $337,610 (496 Favorable) (199 Favorable) 298 Unfavorable Total fixed expense Operating income 48,370 Favorable 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: 101,286 pounds at a total of $557,073 Direct materials used: 101,286 pounds Direct labor hours worked: 26,315 at a total cost of $265,776 Machine hours used: 40,663