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 250 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 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
Cases produced and sold Budget Variance 10,250 10,000 250 Favorable $1,947,500 $1,870,000 $77,500 Favorable Direct material 561,000 550,000 11,000 Direct labor 267,650 260,000 7,650 Variable manufacturing overhead 285,012 280,000 5,012 Variable selling expenses 93,130 90,000 3,130 Variable administrative expenses 41,740 40,000 1,740 Contribution margin 698,968 650,000 Fixed manufacturing overhead 111,000 110,000 69,500 70,000 500 Favorable 129,800 130,000 200 Favorable $388,668 $340,000 $48,668 Favorable Sales revenue Fixed selling expenses
Fixed administrative expenses
Operating income Unfavorabl
e
Unfavorabl
e
Unfavorabl
e
Unfavorabl
e
Unfavorabl
e 48,968 Favorable
1,000 Unfavorabl
e 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: 102,000 pounds at a total of $561,000
Direct materials used: 102,000 pounds
Direct labor hours worked: 26,500 at a total cost of $267,650
Machine hours used: 40,950 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 Direct labor $10 per DLH 2.60 DLH 26.00 Variable overhead $7 per MH 4 MH 28.00 $55 Fixed overhead $2.75 per MH 4 MH Total standard cost per case 11.00
$120.00 Don’t show me this message again for the assignment (a-g)
(a-b) Calculate the direct material price variance and direct material quantity variance for the
month. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)
$
Direct material price variance
$
Direct material quantity
variance (c-d) Calculate the direct labor rate variance and direct labor efficiency variance for the month.
(Round answers to 0 decimal places, e.g. 1525. If variance is zero, select "Not
Applicable" and enter 0 for the amounts.)
$
Direct labor rate variance
$
Direct labor efficiency
variance (e-f) Calculate the variable overhead spending variance and variable overhead efficiency variance
for the month. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)
$
Variable overhead spending variance
$
Variable overhead efficiency
variance (g) Calculate the fixed overhead spending variance for the month. (If variance is zero, select
"Not Applicable" and enter 0 for the amounts.)
Fixed overhead spending variance $

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 overhead spending variance and variable overhead efficiency variance for the month.

Calculate the fixed overhead spending variance for the month.