Reference no: EM132430817
Question - 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.
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Actual
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Budget
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Variance
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Cases produced and sold
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10,250
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9,910
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340 Favorable
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Sales revenue
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$1,930,000
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$1,853,200
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$76,800 Favorable
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Less variable expenses
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|
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Direct material
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555,951
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545,050
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10,901 Unfavorable
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Direct labor
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265,241
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257,660
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7,581 Unfavorable
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Variable manufacturing overhead
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282,447
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277,480
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4,967 Unfavorable
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Variable selling expenses
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92,292
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89,190
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3,102 Unfavorable
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Variable administrative expenses
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41,364
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39,640
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1,724 Unfavorable
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Total variable expense
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1,237,295
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1,209,020
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28,275 Unfavorable
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Contribution margin
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692,705
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644,180
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48,525 Favorable
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Less fixed expenses
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|
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Fixed manufacturing overhead
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110,001
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109,010
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991 Unfavorable
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Fixed selling expenses
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68,875
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69,370
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(495 Favorable)
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Fixed administrative expenses
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128,632
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128,830
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(198 Favorable)
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Total fixed expense
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307,508
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307,210
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298 Unfavorable
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Operating income
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$385,197
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$336,970
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$48,227 Favorable
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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.
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Standard Price
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Standard Quantity
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Standard Cost
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Direct materials
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$5.50 per pound
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10 pounds
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$55
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Direct labor
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$10 per DLH
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2.58 DLH
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25.80
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Variable overhead
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$7 per MH
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4 MH
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28.00
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Fixed overhead
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$2.73 per MH
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4 MH
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10.92
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Total standard cost per case
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$119.72
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Required -
Calculate the direct material price variance and direct material quantity variance for the month.
Calculate the direct labor rate variance and direct labor efficiency variance for the month.
Calculate the variable spending variance and variable overhead efficiency variance for the month.
Calculate the fixed overhead spending variance for the month.
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