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 114,000 liters at a budgeted price of $180 per liter this year. The standard direct cost sheet for one liter of the preservative follows.             Direct materials (2 pounds @ $11) $ 22   Direct labor (0.5 hours @ $38)   19       Variable overhead is applied based on direct labor hours. The variable overhead rate is $90 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $45 per unit. All non-manufacturing costs are fixed and are budgeted at $1.9 million for the coming year.   At the end of the year, the costs analyst reported that the sales activity variance for the year was $564,000 unfavorable.   The following is the actual income statement (in thousands of dollars) for the year.           Sales revenue $ 19,698    Less variable costs       Direct materials   2,158   Direct labor   2,060   Variable overhead   4,630   Total variable costs $ 8,848   Contribution margin $ 10,850   Less fixed costs       Fixed manufacturing overhead   1,120   Non-manufacturing costs   1,300   Total fixed costs $ 2,420   Operating profit $ 8,430     During the year, the company purchased 190,000 pounds of material and employed 47,400 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.)

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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 114,000 liters at a budgeted price of $180 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

 

         
Direct materials (2 pounds @ $11) $ 22  
Direct labor (0.5 hours @ $38)   19  
 

 
Variable overhead is applied based on direct labor hours. The variable overhead rate is $90 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $45 per unit. All non-manufacturing costs are fixed and are budgeted at $1.9 million for the coming year.

 

At the end of the year, the costs analyst reported that the sales activity variance for the year was $564,000 unfavorable.

 

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

       
Sales revenue $ 19,698   
Less variable costs      
Direct materials   2,158  
Direct labor   2,060  
Variable overhead   4,630  
Total variable costs $ 8,848  
Contribution margin $ 10,850  
Less fixed costs      
Fixed manufacturing overhead   1,120  
Non-manufacturing costs   1,300  
Total fixed costs $ 2,420  
Operating profit $ 8,430  
 


During the year, the company purchased 190,000 pounds of material and employed 47,400 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    
  Efficiency variance    
b. Direct labor:    
  Price variance    
  Efficiency variance    
c. Variable overhead:    
  Price variance    
  Efficiency variance  
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