Problem 6-30 (Part Level Submission) Lexi Belcher picked up the monthly report t

Question

Problem 6-30 (Part Level Submission)

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 290 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.

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.

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

Required
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 whynot?

Actual Budget Variance Cases produced and sold 10,250 9,960 290 Favorable Sales revenue $1,939,700 $1,862,500 $77,200 Favorable Direct material 558,756 547,800 10,956 Unfavorable Direct labor 266,579 258,960 7,619 Unfavorable Variable manufacturing overhead 283,872 278,880 4,992 Unfavorable Variable selling expenses 92,757 89,640 3,117 Unfavorable Variable administrative expenses 41,573 39,840 1,733 Unfavorable Contribution margin 696,163 647,380 48,783 Favorable Fixed manufacturing overhead 110,556 109,560 996 Unfavorable Fixed selling expenses 69,222 69,720 498 Favorable Fixed administrative expenses 129,281 129,480 199 Favorable Operating income $387,104 $338,620 $48,484 Favorable

Explanation / Answer

a) Direct Material Price variance Actual quantity*(Actual price-Standard Price) 101592*($5.5-5.5) 0 Not applicable Actual Price=558756/101592 5.5 b) Direct Material Quantity variance Standard price*(Actual Quantity-Standard Qunatity) $5.5*(101592-102500) -4994 F Standard Quantity for actual units produced 10 pounds*10250 c) Direct labour rate Variance Actual Hours*(Actual price-Standard Price) 26394*(10.1-$10) 2639.4 Unfavorable Actual price=266579/26394 10.10 d) Direct labour Efficiceny variance Standard price*(Actual Hours-Standard hours) 10*(26394-26547.5) -1535 Favorable Standard hours for actual units produced 2.59 hours*10250 26547.5 Variable Overhead Spending Variance (Actual Overhead Rate-Standard Overhead rate)*Actual hours worked) (6.96004-7)*40786 -1629.80856 1630 F Actual overhead Rate=283872/40786 6.96004 Variable Overhead efficiencyVariance SR*(Actual hours -Standard Hours) 7*(40786-(4*10250)) -1498 1498 F Fixed Overhead Spending Variance Actual Fixed overhead-Budgeted Fixed Overhead 110556-109560 996 U Actual Flexible Budget Variance Cases produced and sold 10,250 10250 Sales revenue $1,939,700 1916729 1862500/9960*10250 $22,971 F Direct material 558,756 563750 10250*55 4,994 F Direct labor 266,579 265475 10250*25.9 -1,104 U Variable manufacturing overhead 283,872 287000 10250*28 3,128 F Variable selling expenses 92,757 92250 89640/9960*10250 -507 Variable administrative expenses 41,573 41000 39840.9960*10250 -573 Contribution margin 696,163 667254 $28,909 F Fixed manufacturing overhead 110,556 112340 10250*10.96 1,784 F Fixed selling expenses 69,222 69720 498 Fixed administrative expenses 129,281 129480 199 Operating income $387,104 355714 $31,390 F Yes Lexi did a overall good job in controlling the expeniture as direct material,variable overhead , sales and fixed manufcaturing overhead are favorable variance

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