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 Direct labor (2 pounds @ $4) (0.5 hours @ $24) $ 8 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 Less variable costs Direct materials Direct labor $7,238 748 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