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 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 10,000 250 Favorable Sales revenue $1,947,500 $1,870,000 $77,500 Favorable Less variable expenses Direct material 561,000 550,000 11,000 Unfavorable Direct labor 267,650 260,000 7,650 Unfavorable Variable manufacturing overhead 285,012 280,000 5,012 Unfavorable Variable selling expenses 93,130 90,000 3,130 Unfavorable Variable administrative expenses 41,740 40,000 1,740 Unfavorable Total variable expense 1,248,532 1,220,000 28,532 Unfavorable Contribution margin 698,968 650,000 48,968 Favorable Less fixed expenses

Fixed manufacturing overhead 111,000 110,000 1,000 Unfavorable Fixed selling expenses 69,500 70,000 (500 Favorable) Fixed administrative expenses 129,800 130,000 (200 Favorable) Total fixed expense 310,300 310,000 300 Unfavorable Operating income $388,668 $340,000 $48,668 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: 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 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 $ Direct material quantity variance $

(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 $ 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 0 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 0 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 0 for the amounts.)

Price/Rate/Spending Variance Quantity/Efficiency Variance Direct materials $ $ Direct labor Variable overhead Fixed overhead Total $ $