Question
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
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 106,000 liters at a budgeted price of $120 per liter this year. The standard direct cost sheet for one liter of the preservative follows.
Direct materials | (2 pounds @ $7) | $ | 14 | |
Direct labor | (0.5 hours @ $30) | 15 | ||
Variable overhead is applied based on direct labor hours. The variable overhead rate is $50 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $13 per unit. All non-manufacturing costs are fixed and are budgeted at $1.5 million for the coming year.
At the end of the year, the costs analyst reported that the sales activity variance for the year was $396,000 unfavorable.
The following is the actual income statement (in thousands of dollars) for the year.
Sales revenue | $ | 12,218 | |
Less variable costs | |||
Direct materials | 1,318 | ||
Direct labor | 1,460 | ||
Variable overhead | 2,430 | ||
Total variable costs | $ | 5,208 | |
Contribution margin | $ | 7,010 | |
Less fixed costs | |||
Fixed manufacturing overhead | 1,530 | ||
Non-manufacturing costs | 1,260 | ||
Total fixed costs | $ | 2,790 | |
Operating profit | $ | 4,220 | |
Required:
What are the fixed overhead price and production volume variances for Paynesville?
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