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 manufactures and sell 138000 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 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 cost analyst reported that 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 materials4,968

Direct labor1,200

Variable overhead1,120

Total Variable costs$7,288

Contribution margin$40,610

Less fixed costs

Fixed manufacturing overhead1,240

Non-manufacturing costs1,420

Total fixed costs$2,660

Operating profit$37,950

Required:

Show an example of a profit variance analysis. (Enter your answers in thousands of 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.

Paynesville Corporation

Profit Variance Analysis

Actual, Manufacturing variances, non-manufacturing variances, sales variances, flexible budget, sales activity variance, master budget

Answer rating: 100% (QA)

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