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
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 100,000 liters at a budgeted price of $75 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

 

         
Direct materials (2 pounds @ $4) $ 8  
Direct labor (0.5 hours @ $24)   12  
 

 
Variable overhead is applied based on direct labor hours. The variable overhead rate is $20 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All non-manufacturing costs are fixed and are budgeted at $1.2 million for the coming year.
 

At the end of the year, the costs analyst reported that the sales activity variance for the year was $270,000 unfavorable.

 

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

 

       
Sales revenue $ 7,238  
Less variable costs      
Direct materials   748  
Direct labor   1,010  
Variable overhead   930  
Total variable costs $ 2,688  
Contribution margin $ 4,550  
Less fixed costs      
Fixed manufacturing overhead   1,050  
Non-manufacturing costs   1,230  
Total fixed costs $ 2,280  
Operating profit $ 2,270  
 

  
During the year, the company purchased 176,000 pounds of material and employed 40,400 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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