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 270 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 | 10,250 | 9,980 | 270 | Favorable | ||||||
Sales revenue | $1,943,600 | $1,866,300 | $77,300 | Favorable | ||||||
Less variable expenses | ||||||||||
Direct material | 559,878 | 548,900 | 10,978 | Unfavorable | ||||||
Direct labor | 267,115 | 259,480 | 7,635 | Unfavorable | ||||||
Variable manufacturing overhead | 284,442 | 279,440 | 5,002 | Unfavorable | ||||||
Variable selling expenses | 92,944 | 89,820 | 3,124 | Unfavorable | ||||||
Variable administrative expenses | 41,657 | 39,920 | 1,737 | Unfavorable | ||||||
Total variable expense | 1,246,036 | 1,217,560 | 28,476 | Unfavorable | ||||||
Contribution margin | 697,564 | 648,740 | 48,824 | Favorable | ||||||
Less fixed expenses | ||||||||||
Fixed manufacturing overhead | 110,778 | 109,780 | 998 | Unfavorable | ||||||
Fixed selling expenses | 69,361 | 69,860 | (499 | Favorable) | ||||||
Fixed administrative expenses | 129,540 | 129,740 | (200 | Favorable) | ||||||
Total fixed expense | 309,679 | 309,380 | 299 | Unfavorable | ||||||
Operating income | $387,885 | $339,360 | $48,525 | 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: 101,796 pounds at a total of $559,878 | ||
● | Direct materials used: 101,796 pounds | ||
● | Direct labor hours worked: 26,447 at a total cost of $267,115 | ||
● | Machine hours used: 40,868 |
Irvin also found the standard cost card for a case of
product.
Standard Price | Standard Quantity | Standard Cost | ||||||
Direct materials | $5.50 per pound | 10 pounds | $55 | |||||
Direct labor | $10 per DLH | 2.59 DLH | 25.90 | |||||
Variable overhead | $7 per MH | 4 MH | 28.00 | |||||
Fixed overhead | $2.74 per MH | 4 MH | 10.96 | |||||
Total standard cost per case | $119.86 |
Calculate the variable overhead spending variance and variable
overhead efficiency variance for the month. (If
variance is zero, select "Not Applicable" and enter 0 for the
amounts.)
Variable overhead spending variance | $
Enter dollar amount |
Unfavorable/ Not Applicable / Favorable |
||
Variable overhead efficiency variance | $
Enter dollar amount |
Not Applicable / Unfavorable / Favorable |
Variable overhead spending variance = Standard overhead - Actual overhead
= 28*10250 - 284442 = $2,558 Favorable
Variable overhead efficiency variance = (Standard hours - actual hours)*standard rate
= (4*10250 - 40868)*$7 = $924 Favorable
Lexi Belcher picked up the monthly report that Irvin Santamaria left on her desk. She smiled...
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 270 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...
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 270 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...
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 270 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...
*Problem 6-30 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 270 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...
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 300 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...
*Problem 6-30 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 350 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...
Stratton, Ltd. manufactures shirts, which it sells to customers for embroidering with various slogans and emblems. The standard cost card for the shirts is as follows. Standard Price Standard Quantity Standard Cost Direct materials $3 per yard 2.00 yards $6.00 Direct labor $14 per DLH 0.75 DLH 10.50 Variable overhead $3.2 per DLH 0.75 DLH 2.40 Fixed overhead $3 per DLH 0.75 DLH 2.25 $21.15 Sandy Robison, operations manager, was reviewing the results for November when he became upset by...
Glavine & Co. produces a single product, each unit of which requires three direct labor hours (DLHs). Practical capacity (for setting the factory overhead application rate) is 58,000 DLHs, on an annual basis. The information below pertains to the most recent year: Standard direct labor hours (DLHs) per unit produced 3.00 Practical capacity, in DLHs (per year) 58,000 Variable overhead efficiency variance $ 19,000 unfavorable (U) Actual production for the year 16,500 units Budgeted fixed manufacturing overhead $ 1,160,000 Standard...
Glavine & Co. produces a single product, each unit of which requires three direct labor hours (DLHs). Practical capacity (for setting the factory overhead application rate) is 62,000 DLHs, on an annual basis. The information below pertains to the most recent year: $ Standard direct labor hours (DLHS) per unit produced Practical capacity, in DLHS (per year) Variable overhead efficiency variance Actual production for the year Budgeted fixed manufacturing overhead Standard direct labor wage rate Total overhead cost variance for...
Glavine & Co. produces a single product, each unit of which requires three direct labor hours (DLHs). Practical capacity (for setting the factory overhead application rate) is 52,000 DLHs, on an annual basis. The information below pertains to the most recent year: Standard direct labor hours (DLHs) per unit produced 3.00 Practical capacity, in DLHs (per year) 52,000 Variable overhead efficiency variance $ 16,000 unfavorable (U) Actual production for the year 15,000 units Budgeted fixed manufacturing overhead $ 1,040,000 Standard...