Exercise 16-36 (Static) 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 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. Direct materials Direct labor (2 pounds @ $4) (0.5 hours @ $24) $ 8 12 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. The following is the actual income statement (in thousands of dollars) for the year. $ 7,238 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 748 1,010 930 $ 2,688 $4,550 1,050 1,230 $ 2,280 $ 2,270 During the year, the company purchased 176,000 pounds of material and employed 40,400 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. a. Direct materials: Price variance Efficiency variance b. Direct labor: Price variance Efficiency variance C. Variable overhead: Price variance Efficiency variance Exercise 16-36 (Static) 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 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. Direct materials Direct labor (2 pounds @ $4) (0.5 hours @ $24) $ 8 12 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. The following is the actual income statement (in thousands of dollars) for the year. $ 7,238 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 748 1,010 930 $ 2,688 $4,550 1,050 1,230 $ 2,280 $ 2,270 During the year, the company purchased 176,000 pounds of material and employed 40,400 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. a. Direct materials: Price variance Efficiency variance b. Direct labor: Price variance Efficiency variance C. Variable overhead: Price variance Efficiency variance