Reference no: EM132841862
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.
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