Week 6 Assignment Ch. 6
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. But, 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:
Actual
Budget
Variance
Units produced and sold
13,325
13,000
325 F
Sales revenue
$2,531,750
2,431,000
$100,750 F
Direct material
729,300
715,000
14,300 U
Direct labor
347,945
338,000
9,945 U
Variable manufacturing
overhead
370,516
364,000
6,516 U
Variable selling expenses
121,069
117,000
4,069 U
Variable administrative
54,262
52,000
2,262 U
expenses
Contribution margin
908,658
845,000
Fixed manufacturing overhead
144,300
143,000
1,300 U
Fixed selling expenses
90,350
Fixed administrative expenses
168,740
169,000
260 F
Operating income
$442,000
