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Item 3 12.5 of 16.66 points awarded Item Scored

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 variance