Reference no: EM132608435

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 116,000 liters at a budgeted price of $195 per liter this year.

The standard direct cost sheet for one liter of the preservative follows.

Direct materials(2 pounds @ $12)$24 Direct labor(0.5 hours @ $40) 20

• Variable overhead is applied based on direct labor hours. The variable overhead rate is $100 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $50 per unit. All non-manufacturing costs are fixed and are budgeted at $2 million for the coming year.
• At the end of the year, the costs analyst reported that the sales activity variance for the year was $606,000 unfavorable.

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

Sales revenue                 $21,718

Less variable costs

Direct materials                   2,368

Direct labor                          2,210

Variable overhead                      5,230

Total variable costs                   $9,808

Contribution margin                       $11,910

Less fixed costs Fixed manufacturing overhead 1,130

Non-manufacturing costs                   1,310

Total fixed costs                               $2,440

Operating profit                                   $9,470

During the year, the company purchased 192,000 pounds of material and employed 48,400 hours of direct labor.

Required:

Question a. Compute the direct material price and efficiency variances.

Question b. Compute the direct labor price and efficiency variances.

Question c. Compute the variable overhead price and efficiency variances.