Question

2 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 140,000 liters at a budgeted price of $375 per liter this year. The standard direct cost sheet for one liter of the preservative follows. 4 points Direct (2 pounds @ $24) (0.5 hours @ $64) $48 materials Direct labor 32 eBook Variable overhead is applied based on direct labor hours. The variable overhead rate is $220 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $110 per unit. All non-manufacturing costs are fixed and are budgeted at $3.2 million for the coming year Print Reference At the end of the year, the costs analyst reported that the sales activity variance for the year was $1,110,000 unfavorable. The following is the actual income statement (in thousands of dollars) for the year. $50,638 Sales revenue Less variable costs 5,268 1,210 Direct materials Direct labor 1,130 7,608 $43,030 Variable overhead Total variable costs Contribution margin Less fixed costs Fixed manufacturing overhead Non-manufacturing costs Total fixed costs 1,250 1,430 $2,680 $40,350 Operating prof it Required: Prepare a profit variance analysis. (Enter your answers in thousands of 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.) PAYNESVILLE CORPORATION Profit Variance Analysis Non- Manufacturing Variances Sales Activity Variance Manufacturing Variances Sales Price Flexible Master Actual Budget Budget Variance $ 50,638 5,268 Sales revenue Materials Direct labor Variable overhead Total variable costs Contribution margin Fixed costs: Manufacturing Non-manufacturing 1,210 1,130 $ 7,608 $ 43,030 0 00 1,250 1,430 2,680 $ 40,350 $ $ Total fixed costs 0 Operating profits

Answer 1

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		Manufacturing Variance		Non Manufacturing Variance		Sales Price Variance		Flexible Budget		Sales Activity Variance		Master Budget
	Actual
Sales Revenue	$   50,638					$                          388	F	$                    50,250	134*$375	$                      2,250	U	$     52,500	140*$375
Materials	$     5,268	$                      1,164	F					$                      6,432	134*$48	$                          288	F	$       6,720	140*$48
Direct Labor	$     1,210	$                      3,078	F					$                      4,288	134*0.5 Hours*$64	$                          192	F	$       4,480	140*0.5 Hours*$64
Variable overhead	$     1,130	$                    13,610	F					$                    14,740	134*0.5 Hours*$220	$                          660	F	$     15,400	140*0.5 Hours*$220
Total Variable Cost	$     7,608	$                    17,852	F					$                    25,460		$                      1,140	F	$     26,600
Contribution margin	$   43,030	$                    17,852	F			$                          388	F	$                    24,790		$                      1,110	U	$     25,900
Fixed Costs:										$                             -
Manufacturing	$     1,250	$                    14,150	F					$                    15,400		$                             -	None	$     15,400	140*$110
Non-Manufacturing	$     1,430			$                      1,770	F			$                      3,200		$                             -	None	$       3,200
Total Fixed Cost	$     2,680	$                    14,150	F	$                      1,770	F			$                    18,600		$                             -	None	$     18,600
Operating Profit	$   40,350	$                    32,002	F	$                      1,770	F	$                          388	F	$                      6,190		$                      1,110	U	$       7,300
Actual Units Sold:
Selling price	a	$                          375
Standard Cost	b	$                          190
($48+$32+$110)
Cont Margin	a-b=c	$                          185
Spending Variance (U)	d	$              1,110,000
Must have sold few qty by	d/c	6,000
Budgeted		140,000
Hence Actual 140,000-6,000		134,000