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 $23 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   3,130   Non-manufacturing costs   1,360   Total fixed costs $ 4,490   Operating profit $ 13,230       Required: What are the fixed overhead price and production volume variances for Paynesville?

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Exercise 16-46 (Algo) Fixed Cost Variances (LO 16-6)

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 $23 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   3,130  
Non-manufacturing costs   1,360  
Total fixed costs $ 4,490  
Operating profit $ 13,230  
 

 
Required:

What are the fixed overhead price and production volume variances for Paynesville? (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.)

 

 

Fixed overhead price variance
Fixed overhead production volume variance
Transcribed Image Text:Fixed overhead price variance Fixed overhead production volume variance
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