Reference no: EM133092482

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 126,000 liters at a budgeted price of $270 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

Direct materials (2 pounds @ $17) $34

Direct labor (0.5 hours @ $50) 25

Variable overhead is applied based on direct labor hours. The variable overhead rate is $150 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $75 per unit. All non-manufacturing costs are fixed and are budgeted at $2.5 million for the coming year.

At the end of the year, the costs analyst reported that the sales activity variance for the year was $816,000 unfavorable.

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

Sales revenue $32,718

Less variable costs

Direct materials 3,508

Direct labor 2,960

Variable overhead 8,530

Total variable costs $14,998

Contribution margin $17,720

Less fixed costs

Fixed manufacturing overhead 1,180

Non-manufacturing costs 1,360

Total fixed costs $2,540

Operating profit $15,180

During the year, the company purchased 202,000 pounds of material and employed 53,400 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.