**Exercise 16-35 (Algo) Profit Variance Analysis (LO 16-4)** 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: $1,090 - Variable Overhead: $1,010 - Total Variable Costs: $4,468 - Contribution Margin: $17,250 - Less Fixed Costs: - Fixed Manufacturing Overhead: $1,130 - Non-manufacturing Costs: $1,310 - Total Fixed Costs: $2,440 - Operating Profit: $14,810 **Required:** Prepare a profit variance analysis. (Enter your answers in thousands of dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.) **Diagram Explanation:** The table at the bottom is titled "Paynesville Corporation Profit Variance Analysis" and includes columns for Actual figures, Manufacturing Variances, Non-Manufacturing Variances, Sales Price Variance, Flexible Budget, Sales Activity Variance, and Master Budget. The table begins with "Sales Revenue" and "Materials," followed by "Direct Labor." Each row has space to enter variances, which are indicated as either favorable (F) or unfavorable (U). **Summary of the Profit Variance Analysis for Paynesville Corporation** This document provides a detailed breakdown of Paynesville Corporation's financial performance, focusing on profit variance analysis. The analysis involves comparing actual financial performance against budgeted expectations, categorizing each variance as favorable ("F") or unfavorable ("U"). ### Key Components: 1. **Sales Revenue** - Actual: $21,718 (in thousands) - Variance Effects: Sales price variance is favorable. 2. **Variable Costs** - **Materials** - Costs: $2,368 - Variance: Favorable - **Direct Labor** - Costs: $1,090 - Variance: Favorable - **Variable Overhead** - Costs: $1,010 - Variance: Favorable - **Total Variable Costs** - Amount: $4,468 - Total Variance: Favorable 3. **Contribution Margin** - Actual: $17,250 - Variance Effects: Favorable 4. **Fixed Costs** - **Manufacturing** - Costs: $1,130 - Variance: Favorable - **Non-Manufacturing** - Costs: $1,310 - Variance: Favorable - **Total Fixed Costs** - Amount: $2,440 - Variance Effects: Favorable 5. **Operating Profit** - Actual: $14,810 - Overall Variance: Favorable ### Diagram Explanation: - **Columns:** - The first column lists each financial component. - Subsequent columns detail variances: Manufacturing, Non-Manufacturing, Sales Price, Flexible Budget, Sales Activity, and Master Budget. - **Variance Indicators:** - "F" indicates a favorable variance and "U" indicates an unfavorable variance. Blank spaces suggest no significant variance. - **Highlighted Areas:** - **Flexible Budget:** A $606 variance is noted as unfavorable for sales activity. - No variances are indicated in the Master Budget. This analysis helps in understanding how actual performance deviates from budgeted plans, indicating areas of efficiency or concern.