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.

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.

Required

Prepare a flexible budget for Paynesville for the year.

Transcribed Image Text:

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