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 260 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		10,250			9,990			260	Favorable
Sales revenue		$1,945,600			$1,868,100			$77,500	Favorable
Less variable expenses
Direct material		560,439			549,450			10,989	Unfavorable
Direct labor		267,382			259,740			7,642	Unfavorable
Variable manufacturing overhead		284,727			279,720			5,007	Unfavorable
Variable selling expenses		93,037			89,910			3,127	Unfavorable
Variable administrative expenses		41,698			39,960			1,738	Unfavorable
Total variable expense		1,247,283			1,218,780			28,503	Unfavorable
Contribution margin		698,317			649,320			48,997	Favorable
Less fixed expenses
Fixed manufacturing overhead		110,889			109,890			999	Unfavorable
Fixed selling expenses		69,431			69,930			(499	Favorable)
Fixed administrative expenses		129,670			129,870			(200	Favorable)
Total fixed expense		309,990			309,690			300	Unfavorable
Operating income		$388,327			$339,630			$48,697	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: 101,898 pounds at a total of $560,439
		Direct materials used: 101,898 pounds
		Direct labor hours worked: 26,474 at a total cost of $267,382
		Machine hours used: 40,909

Irvin also found the standard cost card for a case of product.

		Standard Price		Standard Quantity		Standard Cost
Direct materials		$5.50 per pound		10 pounds		$55
Direct labor		$10 per DLH		2.60 DLH		26.00
Variable overhead		$7 per MH		4 MH		28.00
Fixed overhead		$2.75 per MH		4 MH		11.00
Total standard cost per case						$120.00

(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 0 for the amounts.)

Direct material price variance		$Enter a dollar amount	Select an option Not ApplicableUnfavorableFavorable
Direct material quantity variance		$Enter a dollar amount	Select an option FavorableNot ApplicableUnfavorable

(c-d) Calculate the direct labor rate variance and direct labor efficiency variance for the month. (Round answers to 0 decimal places, e.g. 1,525. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Direct labor rate variance		$Enter a dollar amount rounded to 0 decimal places	Select an option UnfavorableNot ApplicableFavorable
Direct labor efficiency variance		$Enter a dollar amount rounded to 0 decimal places	Select an option UnfavorableFavorableNot Applicable

(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 0 for the amounts.)

Variable overhead spending variance		$Enter a dollar amount	Select an option FavorableNot ApplicableUnfavorable
Variable overhead efficiency variance		$Enter a dollar amount	Select an option FavorableUnfavorableNot Applicable

(g) Calculate the fixed overhead spending variance for the month. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Fixed overhead spending variance

$Enter the fixed overhead spending variance in dollars

Select an option UnfavorableFavorableNot Applicable