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 104,000 liters at a budgeted price of $105 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

Direct materials	(2 pounds @ $6)	$	12
Direct labor	(0.5 hours @ $28)		14

Variable overhead is applied based on direct labor hours. The variable overhead rate is $40 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $20 per unit. All non-manufacturing costs are fixed and are budgeted at $1.4 million for the coming year.

At the end of the year, the costs analyst reported that the sales activity variance for the year was $354,000 unfavorable.

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

Sales revenue	$	10,498
Less variable costs
Direct materials		1,168
Direct labor		1,030
Variable overhead		950
Total variable costs	$	3,148
Contribution margin	$	7,350
Less fixed costs
Fixed manufacturing overhead		1,070
Non-manufacturing costs		1,250
Total fixed costs	$	2,320
Operating profit	$	5,030