Portland Companys Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently appointed general manager of the Ironton Plant, has just bee handed the plants income statement for October. The statement is shown below: Budgeted Actual Sales (5,000 ingots) $250,000 $250,000 Variable Expenses: Variable cost of goods sold* 80,000 96,390 Variable selling expenses 20,000 20,000 Total Variable Expenses 100,000 116,390 Contribution margin 150,000 133,610 Fixed expenses: Manufacturing Overhead 60,000 60,000 Selling & Administrative 75,000 75,000 Total Fixed Expenses 135,000 135,000 Net operating income (loss) $15,000 $(1,390) * Contains direct materials, direct labor, and variable manufacturing overhead. Mr. Santiago was shocked to see the loss for the month, particularly since sales were exactly as budgeted. He stated, I sure hope the plant has a standard cost system in operation. If it doesnt, I wont have the slightest idea of where to start looking for the problem. The plant does use a standard cost system, with the following standard variable cost per ingot: Standard Quantity or Hours Standard Price or Rate Standard Cost Direct Materials 4.0 pounds $2.50 per pound $10.00 Direct Labor 0.6 hours $9.00 per hour 5.40 Variable manufacturing overhead 0.3 hours* $2.00 per hour 0.60 $16.00 * Based on machine-hours Mr. Santiago has determined that during October the plant produced 5,000 ingots and incurred the following costs: Purchased 25,000 pounds of materials at a cost of $2.95 per pound. There were no raw materials in inventory at the beginning of the month. Used in 19,800 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) Worked 3,600 direct labor-hours at a cost of $8.70 per hour. Incurred a total variable manufacturing overhead cost of $4,320 for the month. A total of 1,800 machine-hours were recorded. It is the companys policy to close all variances to cost of goods sold on a monthly basis. Computer the following variances for October: Direct materials price and quantity variances. Direct labor rate and efficiency variances. Variable manufacturing overhead spending and efficiency variances. Summarize the variances that you computed in (1) above by showing the net overall favorable or unfavorable variance for October. What impact did this figure have on the companys income statement? Pick out the two most significant variances that you computed in (1) above. Explain to Mr. Santiago possible causes of these variances