Problem 10-9 Comprehensive Variance Analysis [LO1, LO2, LO3] Portland Company's Ironton Plant produces precast ingots for industrial use. Carlos Santiago, who was recently appointed general manager of the Ironton Plant, has just been handed the plant's contribution format income statement for October. The statement is shown below: Budgeted Actual 225,000 $225,000 Sales (6,000 ingots) Variable expenses: Variable cost of goods sold 73,620 88,700 Variable selling expenses Total variable expenses Contribution margin Fixed expenses 17,000 17,000 90,620 105,700 134,380 119,300 Manufacturing overhead Selling and administrative 53,000 53,000 68,000 68,000 121,000 121,000 S 13,380 (1,700) Total fixed expenses Net operating income (loss) Contains direct materials, direct labor, and variable manufacturing overhead. Mr. Santiago was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He stated, "l sure hope the plant has a standard cost system in operation. If it doesn't, I won't 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 Standard Price Standard or Hours 3.3 pounds 0.6 hours 0.5 hours* or Rate S2.30 per pound S6.30 per hour $1.80 per hour Cost $ 7.59 Direct materials Direct labor Variable manufacturing overhead 3.78 0.90 Total standard variable cost 12.27 Based on machine-hours. During October the plant produced 6,000 ingots and incurred the following costs: a. Purchased 24,800 pounds of materials at a cost of $2.75 per pound. There were no raw materials in inventory at the beginning of the month. b. Used 19,600 pounds of materials in production. (Finished goods and work in process inventories are insignificant and can be ignored.) c. Worked 4,200 direct labor-hours at a cost of $6.00 per hour d. Incurred a total variable manufacturing overhead cost of $7,260 for the month. A total of 3,300 machine- hours was recorded It is the company's policy to close all variances to cost of goods sold on a monthly basis