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.

	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 Price	Standard Quantity	Standard Cost
Direct materials	$5.50 per pound	10 pounds	$55
Direct labor	$10 per DLH	2.58 DLH	25.80
Variable overhead	$7 per MH	4 MH	28.00
Fixed overhead	$2.73 per MH	4 MH	10.92
Total standard cost per case			$119.72

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.