Problem 6-30 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 270 cases off the production line before the end of the month. But as she glanced over the rest of numbers, Lexi couldn't 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. Variance Actual 10,250 $1,943,600 Budget 9,980 $1,866,300 270 Favorable $77,300 Favorable Cases produced and sold Sales revenue Less variable expenses Direct material Direct labor Variable manufacturing overhead Variable selling expenses Variable administrative expenses Total variable expense Contribution margin Less fixed expenses Fixed manufacturing overhead Fixed selling expenses Fixed administrative expenses Total fixed expense Operating income 559,878 267,115 284,442 92,944 41,657 1,246,036 697,564 548,900 259,480 279,440 89,820 39,920 1,217,560 648,740 10,978 Unfavorable 7,635 Unfavorable 5,002 Unfavorable 3,124 Unfavorable 1,737 Unfavorable 28,476 Unfavorable 48,824 Favorable 110,778 69,361 129,540 309,679 $387,885 109,780 69,860 129,740 309,380 $339,360 998 Unfavorable (499 Favorable) (200 Favorable) 299 Unfavorable $48,525 Favorable Lexi picked up the phone and called Irvin. "Irvin, I don't 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 what's going on?" "Let me look into it and I'll get back to you," Irvin replied. Irvin gathered the following additional information about the month's performance. Direct materials purchased: 101,796 pounds at a total of $559,878 Direct materials used: 101,796 pounds Direct labor hours worked: 26,447 at a total cost of $267,115 Machine hours used: 40,868 Irvin also found the standard cost card for a case of product. Direct materials Direct labor Variable overhead Fixed overhead Standard Price $5.50 per pound $10 per DLH $7 per MH $2.74 per MH Standard Quantity 10 pounds 2.59 DLH 4 MH 4 MH Standard Cost $55 25.90 28.00 10.96 $119.86 Total standard cost per case (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 o for the amounts.) Direct material price variance $ 0 Not Applicable Direct material quantity variance $ 6677 Favorable - (c-d) Calculate the direct labor rate variance and direct labor efficiency variance for the month. (Round answers to o decimal places, e.g. 1,525. If variance is zero, select "Not Applicable" and enter o for the amounts.) Direct labor rate variance s 2645 Unfavorable : Direct labor efficiency variance $ 1005 Favorable (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 o for the amounts.) Variable overhead spending variance $ Variable overhead efficiency variance $ (9) Calculate the fixed overhead spending variance for the month. (If variance is zero, select "Not Applicable" and enter o 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 o for the amounts.) Price/Rate/Spending Variance Quantity/Efficiency Variance Direct materials Direct labor Variable overhead Fixed overhead Total Based on your review of the performance report you prepared, do you think Lexi did a good job of controlling production expenses during the month
