Paynesville Corporation manufactures and sells a preservative used in food and drug manufacturing. The company carries no
Question:
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 110,000 liters at a budgeted price of $150 per liter this year. The standard direct cost sheet for one liter of the preservative follows.
Direct materials(2 pounds @ $9)$18Direct labor(0.5 hours @ $34)17
Variable overhead is applied based on direct labor hours. The variable overhead rate is $70 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $35 per unit. All non-manufacturing costs are fixed and are budgeted at $1.7 million for the coming year.
At the end of the year, the costs analyst reported that the sales activity variance for the year was $480,000 unfavorable.
The following is the actual income statement (in thousands of dollars) for the year.
Sales revenue$15,838Less variable costs Direct materials1,738Direct labor1,760Variable overhead3,480Total variable costs$6,978Contribution margin$8,860Less fixed costs Fixed manufacturing overhead1,100Non-manufacturing costs1,280Total fixed costs$2,380Operating profit$6,480
During the year, the company purchased 186,000 pounds of material and employed 45,400 hours of direct labor.
Required:
a. Compute the direct material price and efficiency variances.
b. Compute the direct labor price and efficiency variances.
Fundamentals of Cost Accounting
ISBN: 978-1259969478
6th edition
Authors: William N. Lanen, Shannon Anderson, Michael W Maher