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 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
Sales revenue
Less variable expenses
Direct material
Direct labor
Variable manufacturing overhead
Variable selling expenses
Variable administrative expenses
Total variable expense
Contribution margin
Less fixed expenses
Fixed manufacturing overhead
Fixed selling expenses
Fixed administrative expenses
Total fixed expense
Operating income
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.
Standard Price
Standard Quantity
Standard Cost
Direct materials
Direct labor
Variable overhead
Fixed overhead
Total standard cost per case
- Lexi Belcher Picked Up The Monthly Report That Irvin Santamaria Left On Her Desk She Smiled As Her Eyes Went Straight T 1 (82.02 KiB) Viewed 54 times