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cjohns21 cjohns21
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A year ago
Paul Benny picked up the monthly report that Eve Lynch left on his desk. He was pleased to see the favorable variance for operating income. He had pushed hard to exceed budgeted monthly production by 325 units. Paul was puzzled by some of line items in the report. He wonders whether it's an error that most of the operating expenses are higher than the budget after all his hard work to manage the production line to improve efficiency and reduce costs. The report Paul reviewed is shown below:

ActualBudgetVariance
Units produced and sold13,32513,000325 F
Sales revenue      $2,531,750        $2,431,000        $100,750 F
Direct material729,300715,00014,300 U
Direct labor347,945338,0009,945 U
Variable manufacturing overhead370,516364,0006,516 U
Variable selling expenses121,069117,0004,069 U
Variable administrative expenses            54,262               52,000             2,262 U
Contribution margin$   908,658$   845,000$   63,658 F
Fixed manufacturing overhead144,300143,0001,300 U
Fixed selling expenses90,35091,000650 F
Fixed administrative expenses          168,740             169,000                 260 F
Operating income      $   505,268        $   442,000       $   63,268 F

Paul called Eve into his office to discuss all the unfavorable variances in the operating costs. Paul is very confused about how the budgeted operating income for the month is favorable, and yet there are so many unfavorable variances on the operating costs. Eve has promised Paul to investigate and report back any findings. Eve has also gathered the following additional information about the month's performance, and the standard cost card for a unit of product.

Direct materials purchased: 132,600 pounds at a total of $729,300
Direct materials used: 132,600 pounds
Direct labor hours worked: 34,450 at a total cost of $347,945
Machine hours used: 53,235

The standard cost card for a unit of product.
Standard PriceStandard QuantityStandard Cost
Direct materials$5.50 per pound10 pounds$  55.00
Direct labor$10.00 per DLH2.6 DLH26.00
Variable overhead$7.00 per MH4 MH28.00
Fixed overhead$3.58 per MH4 MH   14.32
Total standard cost per unit$123.32

Required:

a.Calculate the direct material price variance for the month.
b.Calculate the direct material 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 Paul in evaluating his efforts to control
production costs.
i.Based on your review of the performance report you prepared, do you think Paul did
a good job of controlling production expenses during the month? Why or why not?
Textbook 
Managerial Accounting

Managerial Accounting


Edition: 4th
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ggianolaggianola
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A year ago
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cjohns21 Author
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A year ago
Thanks
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Thank you, thank you, thank you!
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2 hours ago
Helped a lot
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