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 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

  
During the year, the company purchased 176,000 pounds of material and employed 40,400 hours of direct labor.


Required:
a. Compute the direct material price and efficiency variances.
b. Compute the direct labor price and efficiency variances.
c. Compute the variable overhead price and efficiency variances.

(For all requirements, enter your answers in whole dollars. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

rev: 11_20_2019_QC_CS-191240

Answer 1

a)

sales activity variance = Standard sales price * ( Actual Qty Sold - Budgeted Qty )

$270000 =$75*(Actual Qty Sold - 100000)

Actual Qty Sold =96400 liters

Direct Material Price Varaince = Actual Quantity Used * (Standard Price per unit - Actual Price Per Unit

= 176000 Units*($4 per Pounds-$4.25 per )

=$44000 (Unfavorable)

Direct Material Efficiency Varaince = Standard Price Per Unit * (Standard Quantity For Actual Units Produced - Actual Quantity)

= $4 Per Unit ([96400Units*2 Pounds Per Uniit] - [96400 Units *1.826 Per Unit])

=$67200 (Favorable)

b)

Direct Labor Rate Variance = Actual Hours * (Standard Rate Per Hour - Actual Rate Per Hour)

= 40400 Hours*($24 per hour-$25 per hour)

=$40400 (Unfavorable)

Direct Labor Efficiency Variance = Standard Rate Per Hour * (Standard Hours For Actual Units Produced - Actual Hours)

= $24 Per Hour ([96400Units*0.5 Hours Per Unit] - [96400 Units *0.419 Hours Per Unit])

=$187200 (Favorable)

c)

Variable Overheads Price Variance = Actual Hours * (Standard Rate Per Hour - Actual Rate Per Hour)

= 40400 Hours*($20 per hour-$23.012 per hour)

=$122000 (Unfavorable)

Variable Overheads Efficiency Variance = Standard Rate Per Hour * (Standard Hours For Actual Units Produced - Actual Hours)

= $20 Per Hour ([96400Units*0.5 Hours Per Unit] - [96400 Units *0.419 Hours Per Unit])

=$156000 (Favorable)