Problem 6-30 (Part Level Submission)

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 290 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 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			9,960			290	Favorable
Sales revenue		$1,939,700			$1,862,500			$77,200	Favorable
Direct material		558,756			547,800			10,956	Unfavorable
Direct labor		266,579			258,960			7,619	Unfavorable
Variable manufacturing overhead		283,872			278,880			4,992	Unfavorable
Variable selling expenses		92,757			89,640			3,117	Unfavorable
Variable administrative expenses		41,573			39,840			1,733	Unfavorable
Contribution margin		696,163			647,380			48,783	Favorable
Fixed manufacturing overhead		110,556			109,560			996	Unfavorable
Fixed selling expenses		69,222			69,720			498	Favorable
Fixed administrative expenses		129,281			129,480			199	Favorable
Operating income		$387,104			$338,620			$48,484	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: 101,592 pounds at a total of $558,756
		Direct materials used: 101,592 pounds
		Direct labor hours worked: 26,394 at a total cost of $266,579
		Machine hours used: 40,786

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

		Standard Price		Standard Quantity		Standard Cost
Direct materials		$5.5 per pound		10 pounds		$55
Direct labor		$10 per DLH		2.59 DLH		25.90
Variable overhead		$7 per MH		4 MH		28.00
Fixed overhead		$2.74 per MH		4 MH		10.96
Total standard cost per case						$119.86

Required a. Calculate the direct materials price variance for the month. b. Calculate the direct materials quantity variance for the month. c. Calculate the direct labor rate variance for the month. d. Calculate the direct labor efficiency variance for the month. e. Calculate the variable overhead spending variance for the month. f. Calculate the variable overhead efficiency variance for the month. g. Calculate the fixed overhead spending variance for the month. h. Prepare a performance report that will assist Lexi in evaluating her efforts to control production costs. i. 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? Why or whynot? !