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 116,000 liters at a budgeted price of $195 per liter this year. The standard direct cost sheet for one liter of the preservative follows.             Direct materials (2 pounds @ $12) $ 24   Direct labor (0.5 hours @ $40)   20       Variable overhead is applied based on direct labor hours. The variable overhead rate is $100 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $50 per unit. All non-manufacturing costs are fixed and are budgeted at $2 million for the coming year.   At the end of the year, the costs analyst reported that the sales activity variance for the year was $606,000 unfavorable.   The following is the actual income statement (in thousands of dollars) for the year.           Sales revenue $ 21,718   Less variable costs       Direct materials   2,368   Direct labor   2,210   Variable overhead   5,230   Total variable costs $ 9,808   Contribution margin $ 11,910   Less fixed costs       Fixed manufacturing overhead   1,130   Non-manufacturing costs   1,310   Total fixed costs $ 2,440   Operating profit $ 9,470     During the year, the company purchased 192,000 pounds of material and employed 48,400 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.)

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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 116,000 liters at a budgeted price of $195 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

 

         
Direct materials (2 pounds @ $12) $ 24  
Direct labor (0.5 hours @ $40)   20  
 

 
Variable overhead is applied based on direct labor hours. The variable overhead rate is $100 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $50 per unit. All non-manufacturing costs are fixed and are budgeted at $2 million for the coming year.

 

At the end of the year, the costs analyst reported that the sales activity variance for the year was $606,000 unfavorable.

 

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

       
Sales revenue $ 21,718  
Less variable costs      
Direct materials   2,368  
Direct labor   2,210  
Variable overhead   5,230  
Total variable costs $ 9,808  
Contribution margin $ 11,910  
Less fixed costs      
Fixed manufacturing overhead   1,130  
Non-manufacturing costs   1,310  
Total fixed costs $ 2,440  
Operating profit $ 9,470  
 


During the year, the company purchased 192,000 pounds of material and employed 48,400 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.)

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