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. Required Prepare a flexible budget for Paynesville for the year. (Enter your answers in thousands of dollars.)
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.
Paynesville Corporation manufactures and sells a preservative used in food and drug manufacturing. The company carries no inventories. The
| Direct materials | (2 pounds @ $17) | $ | 34 | |
| Direct labor | (0.5 hours @ $50) | 25 | ||
Variable
At the end of the year, the costs analyst reported that the sales activity variance for the year was $816,000 unfavorable.
Required
Prepare a flexible budget for Paynesville for the year. (Enter your answers in thousands of dollars.)
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