Problem - 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
|
Budget
|
Variance
|
|
Cases produced and sold
|
10,250
|
10,000
|
250 Favorable
|
|
Sales revenue
|
$1,947,500
|
$1,870,000
|
$77,500 Favorable
|
|
Direct material
|
561,000
|
550,000
|
11,000 Unfavorable
|
|
Direct labor
|
267,650
|
260,000
|
7,650 Unfavorable
|
|
Variable manufacturing overhead
|
285,012
|
280,000
|
5,012 Unfavorable
|
|
Variable selling expenses
|
93,130
|
90,000
|
3,130 Unfavorable
|
|
Variable administrative expenses
|
41,740
|
40,000
|
1,740 Unfavorable
|
|
Contribution margin
|
698,968
|
650,000
|
48,968 Favorable
|
|
Fixed manufacturing overhead
|
111,000
|
110,000
|
1,000 Unfavorable
|
|
Fixed selling expenses
|
69,500
|
70,000
|
500 Favorable
|
|
Fixed administrative expenses
|
129,800
|
130,000
|
200 Favorable
|
|
Operating income
|
$388,668
|
$340,000
|
$48,668 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: 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.
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 overhead spending variance and variable overhead efficiency variance for the month.
Calculate the fixed overhead spending variance for the month.