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 340 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 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 9,910 340 Favorable

Sales revenue $1,930,000 $1,853,200 $76,800 Favorable

Direct material 555,951 545,050 10,901 Unfavorable

Direct labor 265,241 257,660 7,581 Unfavorable

Variable manufacturing overhead 282,447 277,480 4,967 Unfavorable

Variable selling expenses 92,292 89,190 3,102 Unfavorable

Variable administrative expenses 41,364 39,640 1,724 Unfavorable

Contribution margin 692,705 644,180 48,525 Favorable

Fixed manufacturing overhead 110,001 109,010 991 Unfavorable

Fixed selling expenses 68,875 69,370 495 Favorable

Fixed administrative expenses 128,632 128,830 198 Favorable

Operating income $385,197 $336,970 $48,227 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: 101,082 pounds at a total of $555,951

Direct materials used: 101,082 pounds

Direct labor hours worked: 26,262 at a total cost of $265,241

Machine hours used: 40,581 Irvin also found the standard cost card for a case of product. Standard Price Standard Quantity Standard Cost Direct materials $5.5 per pound 10 pounds $55 Direct labor $10 per DLH 2.58 DLH 25.80 Variable overhead $7 per MH 4 MH 28.00 Fixed overhead $2.73 per MH 4 MH 10.92 Total standard cost per case $119.72 Collapse question part (a-g)

(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 $ FavorableUnfavorableNot Applicable Direct material quantity variance $ Not ApplicableFavorableUnfavorable

(c-d) Calculate the direct labor rate variance and direct labor efficiency variance for the month. (Round answers to 0 decimal places, e.g. 1525. If variance is zero, select "Not Applicable" and enter 0 for the amounts.) Direct labor rate variance $ UnfavorableNot ApplicableFavorable Direct labor efficiency variance $ 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 $ UnfavorableFavorableNot Applicable Variable overhead efficiency variance $ Not ApplicableUnfavorableFavorable

(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 $ FavorableUnfavorableNot Applicable