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 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. (For all requirements, enter your answers in whole dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)