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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 128,000 liters at a budgeted price of $285 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

 

         
Direct materials (2 pounds @ $18) $ 36  
Direct labor (0.5 hours @ $52)   26  

 
Variable overhead is applied based on direct labor hours. The variable overhead rate is $160 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $80 per unit. All non-manufacturing costs are fixed and are budgeted at $2.6 million for the coming year.

 

At the end of the year, the costs analyst reported that the sales activity variance for the year was $858,000 unfavorable.

 

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

       
Sales revenue $ 35,098  
Less variable costs      
Direct materials   3,718  
Direct labor   1,150  
Variable overhead   1,070  
Total variable costs $ 5,938  
Contribution margin $ 29,160  
Less fixed costs      
Fixed manufacturing overhead   1,190  
Non-manufacturing costs   1,370  
Total fixed costs $ 2,560  
Operating profit $ 26,600  

 
Required:

Prepare a profit variance analysis. 

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