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 340 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, Actual Budget Variance Cases produced and sold 10,250 9,910 340 Favorable Sales revenue $1,930,000 $1,853,200 $76,800 Favorable Less variable expenses Direct material 555,951 545,050 10,901 Unfavorable Direct labor 265,241 257,660 7,581 Unfavorable Variable manufacturing overhead 282,447 277,480 4,967 Unfavorable Variable selling expenses 92,292 89,190 3,102 Unfavorable Variable administrative expenses 41,364 39,640 1,724 Unfavorable Total variable expense 1,237,295 1,209,020 28,275 Unfavorable Contribution margin 692,705 644,180 48,525 Favorable Less fixed expenses Fixed manufacturing overhead 110,001 109,010 991 Unfavorable Fixed selling expenses 68,875 69,370 (495 Favorable) Fixed administrative expenses 128,632 128,830 (198 Favorable) Total fixed expense 307,508 307,210 298 Unfavorable Operating income $385,197 $336,970 $48,227 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: 101,082 pounds at a total of $555,951 Direct materials used: 101,082 pounds Direct labor hours worked: 26,262 at a total cost of $265,241 Machine hours used: 40,581 Irvin also found the standard cost card for a case of product. Standard Cost Standard Price Standard Quantity 10 pounds Direct materials $55 Direct labor 2.58 DLH 25.80 $5.50 per pound $10 per DLH $7 per MH $2.73 per MH Variable overhead 4 MH 28.00 Fixed overhead 4 MH 10.92 Total standard cost per case $119.72 (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 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 O 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 o 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 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
