Exercise 16-36 (Algo) Variable Cost Variances (LO 16-5) 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 112,000 Iters at a budgeted price of $165 per liter this year. The standard direct cost sheet for one liter of the preservative follows. Direct materials Direct labor (2 pound $10) $20 (0.5 hours $36) 18 Variable overhead is applied based on direct labor hours. The variable overhead rate is $80 per direct labor hour. The fixed overhead rate (at the master budget level of activity) is $40 per unit. All non-manufacturing costs are fixed and are budgeted at $1.8 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $522,000 unfavorable. The following is the actual income statement (in thousands of dollars) for the year. Sales revenue $17,738 Less variable costa Direct materials 1,948 Direct labor 1,910 Variable overhead 4,030 Total variable conta $7,000 Contribution margin $9,850 Less fixed costs Fixed manufacturing overhead 1,110 Son-manufacturing conta 1,290 Total fixed costs $2,400 Operating profit $ 7,450 During the year, the company purchased 188,000 pounds of material and employed 46,400 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. (For all requirements, enter your answers in whole 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.) a Direct materials: Price variance Eficiency variance b Price variance Eficiency variance Direct labor Variable overhead Price variance Eficiency variance
Exercise 16-36 (Algo) Variable Cost Variances (LO 16-5) 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 112,000 Iters at a budgeted price of $165 per liter this year. The standard direct cost sheet for one liter of the preservative follows. Direct materials Direct labor (2 pound $10) $20 (0.5 hours $36) 18 Variable overhead is applied based on direct labor hours. The variable overhead rate is $80 per direct labor hour. The fixed overhead rate (at the master budget level of activity) is $40 per unit. All non-manufacturing costs are fixed and are budgeted at $1.8 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $522,000 unfavorable. The following is the actual income statement (in thousands of dollars) for the year. Sales revenue $17,738 Less variable costa Direct materials 1,948 Direct labor 1,910 Variable overhead 4,030 Total variable conta $7,000 Contribution margin $9,850 Less fixed costs Fixed manufacturing overhead 1,110 Son-manufacturing conta 1,290 Total fixed costs $2,400 Operating profit $ 7,450 During the year, the company purchased 188,000 pounds of material and employed 46,400 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. (For all requirements, enter your answers in whole 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.) a Direct materials: Price variance Eficiency variance b Price variance Eficiency variance Direct labor Variable overhead Price variance Eficiency variance
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
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Transcribed Image Text:Exercise 16-36 (Algo) Variable Cost Variances (LO 16-5)
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 112,000 liters at a budgeted price of $165 per liter this
year. The standard direct cost sheet for one liter of the preservative follows.
Direct materials
Direct labor
(2 pounda
(0.5 hour
$10) $20
$36)
Variable overhead is applied based on direct labor hours. The variable overhead rate is $80 per direct labor hour. The fixed overhead
rate (at the master budget level of activity) is $40 per unit. All non-manufacturing costs are fixed and are budgeted at $1.8 million for
the coming year.
At the end of the year, the costs analyst reported that the sales activity variance for the year was $522,000 unfavorable.
The following is the actual income statement (in thousands of dollars) for the year.
Sales revenue
$17,736
Las variable costa
1,948
Direct materials
Direct labor
1,910
Variable overhead
4,030
Total variable cont
$7,868
Contribution margin
$ 9,850
Les fixed costs
Fixed manufacturing overhead
1,110
Son-manufacturing costa
1,290
Total fixed costa
$ 2,400
Operating profit
$ 7,450
During the year, the company purchased 188,000 pounds of material and employed 46,400 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.
(For all requirements, enter your answers in whole 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.)
a Direct materials:
b. Direct labor
c. Variable overhead
Price variance
Efficiency variance
Price variance
Eficiency variance
Price variance
Efficiency variance
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