Compute the direct material price and efficiency variances

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Question - Paynesville Corporation manufactures and sells a preservative used in food and drug manufacturing. The company carries no inventories. The master budget calls for the company to manufacture and sell 104,000 liters at a budgeted price of $105 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

Direct materials (2 pounds @ $6) $12

Direct labor (0.5 hours @ $28) 14

Variable overhead is applied based on direct labor hours. The variable overhead rate is $40 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $20 per unit. All non-manufacturing costs are fixed and are budgeted at $1.4 million for the coming year.

At the end of the year, the costs analyst reported that the sales activity variance for the year was $354,000 unfavorable.

The following is the actual income statement (in thousands of dollars) for the year.

Sales revenue $10,498

Less variable costs

Direct materials 1,168

Direct labor 1,310

Variable overhead 1,930

Total variable costs $4,408

Contribution margin $6,090

Less fixed costs

Fixed manufacturing overhead 1,070

Non-manufacturing costs 1,250

Total fixed costs $2,320

Operating profit $3,770

During the year, the company purchased 180,000 pounds of material and employed 42,400 hours of direct labor.

Required -

a. Compute the direct material price and efficiency variances.

b. Compute the direct labor price and efficiency variances.

c. Compute the variable overhead price and efficiency variances.

Reference no: EM132841862

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