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	(2 pounds @ $4)	$	8
Direct labor	(0.5 hours @ $24)		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.

Sales revenue	$	7,238
Less variable costs
Direct materials		748
Direct labor		1,010
Variable overhead		930
Total variable costs	$	2,688
Contribution margin	$	4,550
Less fixed costs
Fixed manufacturing overhead		1,050
Non-manufacturing costs		1,230
Total fixed costs	$	2,280
Operating profit	$	2,270

PAYNESVILLE CORPORATION Profit Variance Analysis Actual Manufacturing Variances Non-Manufacturing Variances Sales Price Variance Flexible Budget Sales Activity Variance Master Budget Sales revenue $ 7,238 Materials 748 Direct labor 1,010 Variable overhead 930 Total variable costs $ 0 $ 0 2,688 4,550 Contribution margin $ 0 $ 0 Fixed costs: Manufacturing Non-manufacturing 1,050 1,230 Total fixed costs $ 2,280 $ $ 0 of Operating profits $ 2,270 $ $ 0