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. 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 1,180 Non-manufacturing costs 1,360 Total fixed costs $ 2,540 Operating profit $ 15,180 During the year, the company purchased 202,000 pounds of material and employed 53,400 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.
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.
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 | 1,180 | ||
| Non-manufacturing costs | 1,360 | ||
| Total fixed costs | $ | 2,540 | |
| Operating profit | $ | 15,180 | |
During the year, the company purchased 202,000 pounds of material and employed 53,400 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.
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