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 250 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 $1,947,500 Budget 10,000 $1,870,000 Variance 250 Favorable $77,500 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 561,000 267,650 285,012 93,130 41,740 1,248,532 698,968 550,000 260,000 280,000 90,000 40,000 1,220,000 650,000 11,000 Unfavorable 7,650 Unfavorable 5,012 Unfavorable 3,130 Unfavorable 1,740 Unfavorable 28,532 Unfavorable 48,968 Favorable 111,000 69,500 129,800 310,300 110,000 70,000 130,000 310.000 1,000 Unfavorable (500 Favorable) (200 Favorable) 300 Unfavorable Total fixed expense Operating income 310,300 $388,668 310,000 $340,000 300 Unfavorable $48,668 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: 102,000 pounds at a total of $561,000 Direct materials used: 102,000 pounds Direct labor hours worked: 26,500 at a total cost of $267,650 Machine hours used: 40,950 Irvin also found the standard cost card for a case of product. Standard Cost $55 Standard Quantity 10 pounds 2.6 DLH Standard Price $5.50 per pound $10 per DLH $7 per MH $2.75 per MH Direct materials Direct labor Variable overhead Fixed overhead Total standard cost per case 4 MH 4 MH $120 (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 Applicables and enter o for the amounts.) Fixed overhead spending variance $ 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 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
