Exercise 16-36 (Algo) Variable Cost Variances (LO 16-5) 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 116,000 liters at a budgeted price of $195 per liter this year. The standard direct cost sheet for one liter of the preservative follows. Direct materials Direct labor (2 pounds $12) $24 (0.5 hours $40) 20 Variable overhead is applied based on direct labor hours. The variable overhead rate is $100 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $50 per unit. All non-manufacturing costs are fixed and are budgeted at $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 $606,000 unfavorable. The following is the actual income statement (in thousands of dollars) for the year. Sales revenue Less variable costs Direct materials Direct labor Variable overhead Total variable costs Contribution margin Less fixed costs Fixed manufacturing overhead Non-manufacturing costs Total fixed costs Operating profit $21,718 2,368 2,210 5,230 $9,808 $11,910 1,130 1,310 $ 2,440 $ 9,470