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 310 cases off the production line before the end of the month. But as she glanced over the rest of numbers, texi 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 10,300 9.990 310 Favorable $2,081.700 $1,980,000 $101.700 Favorable Cases produced and sold Sales revenue Less variable expenses Direct material Direct labor Variable manufacturing overhead Variable selling expenses 593,300 576,600 16,700 Unfavorable 289.600 278,000 11.600 Unfavorable 249.500 247,800 1.700 Unfavorable 113,100 111.200 1.900 Unfavorable 113,100 111,200 1.900 Unfavorable 43,300 42,600 700 Unfavorable 1.288,800 1,256,200 32,600 Unfavorable Variable selling expenses Variable administrative expenses Total variable expense Contribution margin Less fixed expenses Fixed manufacturing overhead Fixed selling expenses 792,900 723,800 69,100 Favorable 126,000 130,100 4.100 Favorable 300 Unfavorable 85,800 85.500 146,500 Fixed administrative expenses 148,000 1,500 Unfavorable Total fixed expense 359,800 362, 100 12.300) Favorable Operating income $433.100 $361.700 $71,400 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: 55,100 pounds at a total of $655,690 Direct materials used: 51.400 pounds Direct labor hours worked: 23,160 at a total cost of $270,678 Machine hours used: 52.000 . . Irvin also found the standard cost card for a case of product. Standard Price Standard Cost Standard Quantity 5.00 pounds Direct materials $11.90 per pound $59.50 $11.80 per DLH 2.20 DLH 25.96 Direct labor Variable overhead Fixed overhead $4.85 per MH 5 MH 24.25 $2.20 per MH 5 MH 11.00 $120.71 Total standard cost per case 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.) Quantity/Efficiency Variance Price/Rate/Spending Variance Favorable Not Applicable Direct materials Unfavorable Direct Jabor Favorable Unfavorable Favorable Variable overhead Not Applicable Favorable Fixed Overhead Unfavorable Favorable Total
