In: Accounting
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 128,000 liters at a budgeted price of $285 per liter this year. The standard direct cost sheet for one liter of the preservative follows.
Direct materials | (2 pounds @ $18) | $ | 36 | |
Direct labor | (0.5 hours @ $52) | 26 | ||
Variable overhead is applied based on direct labor hours. The
variable overhead rate is $160 per direct-labor hour. The fixed
overhead rate (at the master budget level of activity) is $80 per
unit. All non-manufacturing costs are fixed and are budgeted at
$2.6 million for the coming year.
At the end of the year, the costs analyst reported that the sales activity variance for the year was $858,000 unfavorable.
The following is the actual income statement (in thousands of
dollars) for the year.
Sales revenue | $ | 35,098 | |
Less variable costs | |||
Direct materials | 3,718 | ||
Direct labor | 3,110 | ||
Variable overhead | 9,230 | ||
Total variable costs | $ | 16,058 | |
Contribution margin | $ | 19,040 | |
Less fixed costs | |||
Fixed manufacturing overhead | 1,190 | ||
Non-manufacturing costs | 1,370 | ||
Total fixed costs | $ | 2,560 | |
Operating profit | $ | 16,480 | |
During the year, the company purchased 204,000 pounds of material
and employed 54,400 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.