Paynesville Corporation manufactures and sells a preservativeused in food and drug manufacturing. The company carries noinventories. The master budget calls for the company to manufactureand sell 104,000 liters at a budgeted price of $105 per liter thisyear. The standard direct cost sheet for one liter of thepreservative follows.
| | | | |
| Direct materials | (2 pounds @ $6) | $ | 12 | |
| Direct labor | (0.5 hours @ $28) | | 14 | |
|
Variable overhead is applied based on direct labor hours. Thevariable overhead rate is $40 per direct-labor hour. The fixedoverhead rate (at the master budget level of activity) is $20 perunit. All non-manufacturing costs are fixed and are budgeted at$1.4 million for the coming year.
At the end of the year, the costs analyst reported that thesales activity variance for the year was $354,000 unfavorable.
The following is the actual income statement (in thousands ofdollars) for the year.
| | | |
| Sales revenue | $ | 10,498 | |
| Less variable costs | | | |
| Direct materials | | 1,168 | |
| Direct labor | | 1,310 | |
| Variable overhead | | 1,930 | |
| Total variable costs | $ | 4,408 | |
| Contribution margin | $ | 6,090 | |
| Less fixed costs | | | |
| Fixed manufacturing overhead | | 1,070 | |
| Non-manufacturing costs | | 1,250 | |
| Total fixed costs | $ | 2,320 | |
| Operating profit | $ | 3,770 | |
|
During the year, the company purchased 180,000 pounds of materialand employed 42,400 hours of direct labor.
Required:
a. Compute the direct material price andefficiency variances.
b. Compute the direct labor price and efficiencyvariances.
c. Compute the variable overhead price andefficiency variances.
(For all requirements, enter your answers in whole dollars.Indicate the effect of each variance by selecting "F" forfavorable, or "U" for unfavorable. If there is no effect, do notselect either option.)
