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. Actual 10,250 $1,937,800 Budget 9,950 $1,860,700 Variance 300 Favorable $77,100 Favorable Cases produced and sold Sales revenue Less variable expenses Direct material Direct labor 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 558,195 266,312 283,587 92,664 41,531 1,242,289 695,511 547,250 258,700 278,600 89,550 39,800 1,213,900 646,800 10,945 Unfavorable 7,612 Unfavorable 4,987 Unfavorable 3,114 Unfavorable 1,731 Unfavorable 28,389 Unfavorable 48,711 Favorable 110,445 69,153 129,151 308,749 $386,762 109,450 69,650 129,350 308,450 $338,350 995 Unfavorable (497 Favorable) (199 Favorable) 299 Unfavorable $48,412 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: 101,490 pounds at a total of $558,195 Direct materials used: 101,490 pounds Direct labor hours worked: 26,368 at a total cost of $266,312 Machine hours used: 40,745 Irvin also found the standard cost card for a case of product. Direct materials Direct labor Variable overhead Fixed overhead Total standard cost per case Standard Price $5.50 per pound $10 per DLH $7 per MH $2.74 per MH Standard Quantity 10 pounds 2.59 DLH 4 MH 4 MH Standard Cost $55 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 o 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 O decimal places, e.g. 1,525. If variance is zero, select "Not Applicable" and enter o for 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 o for the amounts.) Variable overhead spending variance $ Variable overhead efficiency variance $ (g) Calculate the fixed overhead spending variance for the month. (If variance is zero, select "Not Applicable" and enter o for the amounts.) Fixed overhead spending variance $ Price/Rate/Spending Variance Quantity/Efficiency Variance Direct materials Direct labor Variable overhead Fixed overhead Total 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? Click if you would like to Show Work for this question: Open Show Work
