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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 340 cases off the production line before the end of the month. But as she glanced over the rest of numbers, Lexi couldnt 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		10,250			9,910			340	Favorable
Sales revenue		$1,930,000			$1,853,200			$76,800	Favorable
Less variable expenses
Direct material		555,951			545,050			10,901	Unfavorable
Direct labor		265,241			257,660			7,581	Unfavorable
Variable manufacturing overhead		282,447			277,480			4,967	Unfavorable
Variable selling expenses		92,292			89,190			3,102	Unfavorable
Variable administrative expenses		41,364			39,640			1,724	Unfavorable
Total variable expense		1,237,295			1,209,020			28,275	Unfavorable
Contribution margin		692,705			644,180			48,525	Favorable
Less fixed expenses
Fixed manufacturing overhead		110,001			109,010			991	Unfavorable
Fixed selling expenses		68,875			69,370			(495	Favorable)
Fixed administrative expenses		128,632			128,830			(198	Favorable)
Total fixed expense		307,508			307,210			298	Unfavorable
Operating income		$385,197			$336,970			$48,227	Favorable

Lexi picked up the phone and called Irvin. Irvin, I dont 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 whats going on? Let me look into it and Ill get back to you, Irvin replied. Irvin gathered the following additional information about the months performance.

		Direct materials purchased: 101,082 pounds at a total of $555,951
		Direct materials used: 101,082 pounds
		Direct labor hours worked: 26,262 at a total cost of $265,241
		Machine hours used: 40,581

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

(e-f) Calculate the variable overhead spending variance and variable overhead efficiency variance for the month.

Standard Standard price standard Quantity cost Direct materials $55 $5.50 per pound 10 pounds $10 per DLH 2.58 DLH Direct labor 25.80 Variable overhead $7 per MH 4 MH 28.00 Fixed overhead $2.73 per MH 4 MH 10.92 Total standard cost per case $119.72

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