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 390 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			9,910			390	Favorable
Sales revenue		$2,080,400			$1,915,000			$165,400	Favorable
Less variable expenses
Direct material		592,650			575,300			17,350	Unfavorable
Direct labor		288,300			271,500			16,800	Unfavorable
Variable manufacturing overhead		226,300			225,500			800	Unfavorable
Variable selling expenses		111,800			108,600			3,200	Unfavorable
Variable administrative expenses		42,650			41,300			1,350	Unfavorable
Total variable expense		1,261,700			1,222,200			39,500	Unfavorable
Contribution margin		818,700			692,800			125,900	Favorable
Less fixed expenses
Fixed manufacturing overhead		113,000			115,800			2,800	Favorable
Fixed selling expenses		85,150			84,200			950	Unfavorable
Fixed administrative expenses		135,000			133,500			1,500	Unfavorable
Total fixed expense		333,150			333,500			(350)	Favorable
Operating income		$485,550			$359,300			$126,250	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: 53,800 pounds at a total of $610,630
		Direct materials used: 51,400 pounds
		Direct labor hours worked: 25,220 at a total cost of $278,593
		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		$11.35 per pound		5.00 pounds		$56.75
Direct labor		$11.15 per DLH		2.40 DLH		26.76
Variable overhead		$4.40 per MH		5 MH		22.00
Fixed overhead		$2.40 per MH		5 MH		12.00
Total standard cost per case						$117.51

(h) h Your answer is partially correct. 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 Not Applicable Favorable Direct labor Favorable Unfavorable Variable overhead Favorable Unfavorable holdi booni Fixed overhead Favorable Not Applicable V Total Favorable Unfavorable e Textbook and Media Save for Later Attempts: unlimited Submit