Lexi in evaluating her efforts to control production costs. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.) Price/Rate/Spending Variance Quantity/Efficiency Variance Direct materials $ enter a dollar amount select an option $ enter a dollar amount select an option Direct labor enter a dollar amount select an option enter a dollar amount select an option Variable overhead enter a dollar amount select an option
he 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
|
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 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 |
Prepare a performance report that will assist Lexi in evaluating her efforts to control production costs. (If variance is zero, select "Not Applicable" and enter 0 for the amounts.)
|
Price/Rate/Spending Variance
|
Quantity/Efficiency Variance
|
||||||
|---|---|---|---|---|---|---|---|
|
Direct materials
|
$ enter a dollar amount | select an option | $ enter a dollar amount | select an option | |||
|
Direct labor
|
enter a dollar amount | select an option | enter a dollar amount | select an option | |||
|
Variable overhead
|
enter a dollar amount | select an option | enter a dollar amount | select an option | |||
|
Fixed overhead
|
enter a dollar amount | select an option | enter a dollar amount | select an option | |||
|
Total
|
$ enter a total amount | select an option | $ enter a total amount | select an option |
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