Question

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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 to manufacture and sell 134,000 liters at a budgeted price of $330 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

Direct materials (2 pounds @ $21) $ 42

Direct labor (0.5 hours @ $58) 29

Variable overhead is applied based on direct labor hours. The variable overhead rate is $190 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $95 per unit. All non-manufacturing costs are fixed and are budgeted at $2.9 million for the coming year.

At the end of the year, the costs analyst reported that the sales activity variance for the year was $984,000 unfavorable.

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

Sales revenue $ 42,598

Less variable costs

Direct materials 4,468

Direct labor 1,180

Variable overhead 1,100

Total variable costs $ 6,748

Contribution margin $ 35,850

Less fixed costs

Fixed manufacturing overhead 1,220

Non-manufacturing costs 1,400

Total fixed costs $ 2,620

Operating profit $ 33,230

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.)

Answer 1

Please find the below answer

The actual sales variance analysis is 1,622,000 Unfavourble compare to the budget

`		Actuals	Variance	Favourable/(Unfavourable)
Details	Cost/Unit	Volume	Rate	Value
Preservative Sales	330	134000	330	44220		42598	-1622	U
DM	42	134000	42	5628		4468	1160	F
DL	29	134000	29	3886		1180	2706	F
V OHEAD (190/2)	95	134000	95	12730		1100	11630	F
Total Variable Cost				22244		6748	15496	F
F OHEAD	95	134000	95	12730		1220	11510	F
Fixed Manufacting expenses				2,900		1400	2486	F
Operating Profit				6,346		33,230		F