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Michlana Company's Benton Harbor Plant produces precast Ingots for Industrial use. Angelo Lorenzo, who was recently appointed general manager of the Benton Harbor Plant, has just been handed the plants contribution format Income statement for October. The statement is shown below: Budgeted Actual $ 250.000 250.000 $ Sales (4,000 ingots) 66,760 Variable expenses: Variable cost of goods sold" Variable selling expenses 81,190 22.000 22.000 88,760 103.190 Total variable expenses 161,240 146,810 Contribution margin 63.000 63,000 Fixed expenses: Manufacturing overhead Selling and administrative 88,000 88,000 151,000 Total fixed expenses 151,000 Net operating Income (loss) $ 10.240 $ (4,190 -Contains direct materials, direct labor, and variable manufacturing overhead. Mr. Lorenzo was shocked to see the loss for the month, particularly because sales were exactly as budgeted. He stated. "I sure hope the piant 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 problemi The plant does use a standard cost system, with the following standard variable cost per ingot 240 per or Hours or Rate 3.8 pounds pound 0.7 hours $7.90 per hour 0.6 hours* $3.40 per hour Cost $ 9.12 5.53 Direct materials Direct labor Variable manufacturing overhead 204 $16.69 Total standard variable cost "Based on machine-hours. During October the plant produced 4.000 ingots and incurred the following costs: a. Purchased 20,200 pounds of materials at a cost of $2.85 per pound. There were no raw materials In Inventory at the beginning of the month. b.Used 15,000 pounds of materials in production. (Finished goods and work in process Inventories are insignificant and can be ignored.) c. Worked 3,400 direct labor-hours at a cost of $7.60 per hour. d.incurred a total variable manufacturing overhead cost of $10.260 for the month. A total of 2700 machine-hours was recorded. It is the company's policy to close all variances to cost of goods sold on a monthly basis. Required: 1. Assume that the company recognizes price variances when materials are purchased. Compute the following variances for October a. Direct materials price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable. "U" for unfavorable, and "None" for no effect (.e., zero variance).) Materials price variance Materials quantity variance b. Direct labor rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable. "U" for unfavorable, and "None" for no effect (le, zero variance).) Labor rate variance Labor efficiency variance c. Variable overhead rate and efficiency variances, (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (l.e., zero varlance).) Variable overhead rate variance Variable overhead efficiency Variance 2 Summarize the variances that you computed In (1) above by showing the net overall favorable or unfavorable variance for October (Input all amounts as positive values. Indicate the effect of variance by selecting "F" for favorable. "U" for unfavorable, and "None" for no effect (Le.. zero varlance).) Net variance 3. Pick out the two most significant variances that you computed in (1) above. (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer.) 2 Materiais price variance 2 Materiais quantity vartance 3 Variable overead efficiency variance 7 Laborrate variance 2 Variable overead rate variance 7 Labor eficiency variance