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 120,000 liters at a budgeted price of $225 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

Please show all of the steps, thank you very much.

Direct materials Direct labor (2 pounds @ $14) (0.5 hours @ $44) $28 22 Variable overhead is applied based on direct labor hours. The variable overhead rate is $120 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $60 per unit. All non-manufacturing costs are fixed and are budgeted at $2.2 million for the coming year. At the end of the year, the costs analyst reported that the sales activity variance for the year was $690,000 unfavorable. The following is the actual income statement in thousands of dollars) for the year. $25,938 Sales revenue Less variable costs Direct materials Direct labor Variable overhead Total variable costs Contribution margin Less fixed costs Fixed manufacturing overhead Non-manufacturing costs Total fixed costs Operating profit 2,788 2,510 6,480 $11,778 $14,160 1,150 1,330 $ 2,480 $11,680 During the year, the company purchased 196,000 pounds of material and employed 50,400 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.) $ 44,000U Direct materials: Price variance Efficiency variance Direct labor: Price variance Efficiency variance Variable overhead: Price variance Efficiency variance

Answer 1

a. Direct Material

Price Variance = (standard price - actual price ) X actual quantity used.

($14 - $14.2244) X 196000 pounds

= $44000 ( unfavourable , since answer is in negative )

work note:

Actual price of material

$2788000 total materials cost / 196000 pounds of materials purchased }

Material Efficiency variance = (Actual unit usage - Standard unit usage) x Standard cost per unit

Working note - Standard unit usage for actual output

Actual output - work note.

Actual sales value = $ 25938000

assumption. : standard sales price per unit  and actual sale price per unit is same.

Actual production will be = 25938000/225 = 115280 litres

Standard materials requirement for actual production now will be.

115280 litres X 2 pounds = 230560 pounds

Now applying formula.

(Actual unit usage - Standard unit usage) x Standard cost per unit

(196000 - 230560 ) X 14 = $483,840 unfavourable

b. Labour variances:

labour price variance

(Actual Hours x Actual Rate   - Actual Hours x Standard Rate)

Actual hours = 50400 hours X actual rate 49.8015 = $2510000

work note : actual rate = direct labour cost / direct labour hours

= 2510000/ 50400 = 49.8015

Actual Hours x Standard Rate = 50400 X44 =$2217600

labour price variance = $292,400 unfavourable

Direct labour efficiency variance = (Actual Hours x Standard Rate -Standard Hours x Standard Rate)

50400 X 44 - standard hours for actual production X 44

work note : standard hours for actual production

= actual production 115280 X 0.5 hours = 57640 hours

therefore = 50400 X 44 - 57640 X 44

=2217600- 2536160

=$ 318,560 favourable

c. variable overhead

price variance = (Actual Hours x Actual Rate   - Actual Hours x Standard Rate)

($6480000 - 50400 x 120) = $432000 unfavourable

efficiency variance.

(Actual hours - Standard hours) x Standard rate = variable overhead efficiency variance

(50400- 57640)X120 = $868,800 favourable

Direct Material
	Price Variance	$44000	U
	Material Efficiency variance	$483,840	U
Direct Labour
	Price Variance	$292,400	U
	Efficiency Variance	$ 318,560	F
Variable overhead
	Price Variance	$432,000	U
	Efficiency Variance	$868,800	F