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 310 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 10,300 9,990 310 Favorable Sales revenue $ 2,080,600 $ 1,925,000 $ 155,600 Favorable Less variable expenses Direct material 592,750 575,500 17,250 Unfavorable Direct labor 288,500 272,500 16,000 Unfavorable Variable manufacturing overhead 236,600 235,800 800 Unfavorable Variable selling expenses 112,000 109,000 3,000 Unfavorable Variable administrative expenses 42,750 41,500 1,250 Unfavorable Total variable expense 1,272,600 1,234,300 38,300 Unfavorable Contribution margin 808,000 690,700 117,300 Favorable Less fixed expenses Fixed manufacturing overhead 115,000 118,000 3,000 Favorable Fixed selling expenses 85,250 84,400 850 Unfavorable Fixed administrative expenses 137,000 135,500 1,500 Unfavorable Total fixed expense 337,250 337,900 ( 650) Favorable Operating income $ 470,750 $ 352,800 $ 117,950 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: 54,000 pounds at a total of $ 618,300 ● Direct materials used: 51,300 pounds ● Direct labor hours worked: 27,280 at a total cost of $ 304,260 ● Machine hours used: 52,000 Irvin also found the standard cost card for a case of product. Standard Price Standard Quantity Standard Cost Direct materials $ 11.45 per pound 5.00 pounds $ 57.25 Direct labor $ 11.25 per DLH 2.60 DLH 29.25 Variable overhead $ 4.60 per MH 5 MH 23.00 Fixed overhead $ 2.60 per MH 5 MH 13.00 Total standard cost per case $ 122.50 Calculate the 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

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 310 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 10,300 9,990 310 Favorable Sales revenue $ 2,080,600 $ 1,925,000 $ 155,600 Favorable Less variable expenses Direct material 592,750 575,500 17,250 Unfavorable Direct labor 288,500 272,500 16,000 Unfavorable Variable manufacturing overhead 236,600 235,800 800 Unfavorable Variable selling expenses 112,000 109,000 3,000 Unfavorable Variable administrative expenses 42,750 41,500 1,250 Unfavorable Total variable expense 1,272,600 1,234,300 38,300 Unfavorable Contribution margin 808,000 690,700 117,300 Favorable Less fixed expenses Fixed manufacturing overhead 115,000 118,000 3,000 Favorable Fixed selling expenses 85,250 84,400 850 Unfavorable Fixed administrative expenses 137,000 135,500 1,500 Unfavorable Total fixed expense 337,250 337,900 ( 650) Favorable Operating income $ 470,750 $ 352,800 $ 117,950 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: 54,000 pounds at a total of $ 618,300 ● Direct materials used: 51,300 pounds ● Direct labor hours worked: 27,280 at a total cost of $ 304,260 ● Machine hours used: 52,000 Irvin also found the standard cost card for a case of product. Standard Price Standard Quantity Standard Cost Direct materials $ 11.45 per pound 5.00 pounds $ 57.25 Direct labor $ 11.25 per DLH 2.60 DLH 29.25 Variable overhead $ 4.60 per MH 5 MH 23.00 Fixed overhead $ 2.60 per MH 5 MH 13.00 Total standard cost per case $ 122.50 Calculate the 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

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter8: Budgeting For Planning And Control

Section: Chapter Questions

Problem 40P: The controller for Muir Companys Salem plant is analyzing overhead in order to determine appropriate...

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Related questions

Question

	Actual	Budget		Variance
Cases produced and sold	10,300		9,990		310	Favorable
Sales revenue	$ 2,080,600		$ 1,925,000		$ 155,600	Favorable
Less variable expenses
Direct material	592,750		575,500		17,250	Unfavorable
Direct labor	288,500		272,500		16,000	Unfavorable
Variable manufacturing overhead	236,600		235,800		800	Unfavorable
Variable selling expenses	112,000		109,000		3,000	Unfavorable
Variable administrative expenses	42,750		41,500		1,250	Unfavorable
Total variable expense	1,272,600		1,234,300		38,300	Unfavorable
Contribution margin	808,000		690,700		117,300	Favorable
Less fixed expenses
Fixed manufacturing overhead	115,000		118,000		3,000	Favorable
Fixed selling expenses	85,250		84,400		850	Unfavorable
Fixed administrative expenses	137,000		135,500		1,500	Unfavorable
Total fixed expense	337,250		337,900		( 650)	Favorable
Operating income	$ 470,750		$ 352,800		$ 117,950	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: 54,000 pounds at a total of $ 618,300
●		Direct materials used: 51,300 pounds
●		Direct labor hours worked: 27,280 at a total cost of $ 304,260
●		Machine hours used: 52,000

Irvin also found the standard cost card for a case of product.

	Standard Price	Standard Quantity	Standard Cost
Direct materials	$ 11.45 per pound	5.00 pounds	$ 57.25
Direct labor	$ 11.25 per DLH	2.60 DLH	29.25
Variable overhead	$ 4.60 per MH	5 MH	23.00
Fixed overhead	$ 2.60 per MH	5 MH	13.00
Total standard cost per case			$ 122.50

Calculate the 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

Definition Definition Measure used to estimate the difference between the budgeted and annual proportion for a specific accounting year. A favorable budget variance refers to positive variances or gains, while unfavorable or negative variances refer to a shortfall in the budget. A budget variance is indicative of the instances where the actual costs incurred are higher or lower than the estimated costs.

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