Question: Lexi Belcher picked up the monthly report
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 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.
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.
a. Calculate the direct materials price variance for the month.
b. Calculate the direct materials quantity variance for the month.
c. Calculate the direct labor rate variance for the month.
d. Calculate the direct labor efficiency variance for the month.
e. Calculate the variable overhead spending variance for the month.
f. Calculate the variable overhead efficiency variance for the month.
g. Calculate the fixed overhead spending variance for the month.
h. Prepare a performance report that will assist Lexi in evaluating her efforts to control production costs.
i. Based on your review of the performance report you prepared, do you think Lexi did a good job of controlling production expenses during the month? Why or why not?
Transcribed Image Text:
Actual Budget Variance 10,000 $1,870,000 Cases produced and sold 10,250 $1,947,500 250 F Sales revenue $77,500 F Less variable expenses Direct material 561,000 267,650 285,012 93,130 41,740 550,000 260,000 280,000 90,000 40,000 1,220,000 11,000 U 7,650 U 5,012 U 3,130 U 1,740 U Direct labor Variable manufacturing overhead Variable selling expenses Variable administrative expenses Total variable expenses 1,248,532 28,532 U Contribution margin Less fixed expenses Fixed manufacturing overhead Fixed selling expenses Fixed administrative expenses 698,968 650,000 48,968 F 111,000 69,500 110,000 70,000 130,000 1,000 U (500 F) (200 F) 129,800 310,300 $ 388,668 Total fixed expenses 310,000 $ 340,000 300 U Operating income $48,668 F
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