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 320 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		10,300			9,980			320	Favorable
Sales revenue		$2,080,800			$1,935,000			$145,800	Favorable
Less variable expenses
Direct material		592,850			575,700			17,150	Unfavorable
Direct labor		288,700			273,500			15,200	Unfavorable
Variable manufacturing overhead		246,900			246,100			800	Unfavorable
Variable selling expenses		112,200			109,400			2,800	Unfavorable
Variable administrative expenses		42,850			41,700			1,150	Unfavorable
Total variable expense		1,283,500			1,246,400			37,100	Unfavorable
Contribution margin		797,300			688,600			108,700	Favorable
Less fixed expenses
Fixed manufacturing overhead		117,000			120,200			3,200	Favorable
Fixed selling expenses		85,350			84,600			750	Unfavorable
Fixed administrative expenses		139,000			137,500			1,500	Unfavorable
Total fixed expense		341,350			342,300			(950)	Favorable
Operating income		$455,950			$346,300			$109,650	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: 54,200 pounds at a total of $626,010
		Direct materials used: 51,100 pounds
		Direct labor hours worked: 25,220 at a total cost of $283,797
		Machine hours used: 52,000

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

		Standard Price		Standard Quantity		Standard Cost
Direct materials		$11.55 per pound		5.00 pounds		$57.75
Direct labor		$11.35 per DLH		2.40 DLH		27.24
Variable overhead		$4.80 per MH		5 MH		24.00
Fixed overhead		$2.40 per MH		5 MH		12.00
Total standard cost per case						$120.99

(a-g)

Partially correct answer iconYour answer is partially correct.

(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 FavorableNot ApplicableUnfavorable
Direct material quantity variance		$enter a dollar amount	select an option 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. 1,525. If variance is zero, select "Not Applicable" and enter 0 for the amounts.)

Direct labor rate variance		$enter a dollar amount	select an option UnfavorableFavorableNot Applicable
Direct labor efficiency variance		$enter a dollar amount	select an option Not ApplicableUnfavorableFavorable

(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 Not ApplicableUnfavorableFavorable
Variable overhead efficiency variance		$enter a dollar amount	select an option Not ApplicableFavorableUnfavorable

(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