Exercise 16-40 (Algo) Variable Cost Variances (LO 16-5) Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 123,500 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows: Direct materials Direct labor (3 pounds @ $2) (0.25 hours @ $32) $ 6 8 Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable. The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products: Sales revenue Less variable costs Direct materials Direct labor Variable overhead Total variable costs Contribution margin Less fixed costs Fixed manufacturing overhead Nonmanufacturing costs Total fixed costs Operating profit $ 11,300 814 1,006 529 $ 2,349 $ 8,951 1,695 2,132 $ 3,827 $ 5,124 During the year, the company purchased 323,500 pounds of material and employed 33,480 hours of direct labor.