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 350 cases off the prodution 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 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. Budget 10,250 9300 Actual Variance 350 Favorable Cases produced and sold Sales revenue 9,900 $1,928,000 $1,851,300 $76,700 Favorable 555,390 264,974 282,162 92,199 41,323 691,952 109,890 68,805 128,502 $384,755 544,500 257,400 277,200 89,100 39,600 643,500 108,900 69,300 128,700 $336,600 10,890 Unfavorable 7,574 Unfavorable 4,962 Unfavorable 3,099 Unfavorable 1,723 Unfavorable Direct labor Variable manufacturing overhead Variable selling expenses Variable administrative expenses Contribution margin Fixed manufacturing overhead Fixed selling expenses Fixed administrative expenses Operating income 4 48,452 Favorable 990 Unfavorable 495 Favorable 198 Favorable $48,155 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 Ill get back to you," Irvin replied Irvin gathered the following additional information about the month's performance . Direct materials purchased: 100,980 pounds at a total of $555,390 . Direct materials used: 100,980 pounds Direct labor hours worked: 26,235 at a total cost of $264,974 . Machine hours used: 40,541 Irvin also found the standard cost card for a case of product. Standard Standard Price $5.5 per pound $10 per DLH $7 per MH $2.72 per MH Standard Quantity Cost Direct materials Direct labor Variable overhead Fixed overhead Total standard cost per case 10 pounds 2.57 DLH 4 MH 4 MH $55 25.70 28.00 10.88 $119.58