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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 138,000 liters at a budgeted price of $360 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

Direct materials	(2 pounds @ $23)	$	46
Direct labor	(0.5 hours @ $62)		31

Variable overhead is applied based on direct labor hours. The variable overhead rate is $210 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $105 per unit. All non-manufacturing costs are fixed and are budgeted at $3.1 million for the coming year.

At the end of the year, the costs analyst reported that the sales activity variance for the year was $1,068,000 unfavorable.

The following is the actual income statement (in thousands of dollars) for the year.

Sales revenue	$	47,898
Less variable costs
Direct materials		4,968
Direct labor		3,860
Variable overhead		13,130
Total variable costs	$	21,958
Contribution margin	$	25,940
Less fixed costs
Fixed manufacturing overhead		1,240
Non-manufacturing costs		1,420
Total fixed costs	$	2,660
Operating profit	$	23,280

During the year, the company purchased 214,000 pounds of material and employed 59,400 hours of direct labor.

a.	Direct materials:
	Price variance
	Efficiency variance
b.	Direct labor:
	Price variance
	Efficiency variance
c.	Variable overhead:
	Price variance
	Efficiency variance