Profit Variance Analysis Assignment | Homework For You
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 130,000 liters at a budgeted price of $300 per liter this year. The standard direct cost sheet for one liter of the preservative follows.
| Direct materials | (2 pounds @ $19) | $ | 38 | |
| Direct labor | (0.5 hours @ $54) | 27 | ||
Variable overhead is applied based on direct labor hours. The variable overhead rate is $170 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $85 per unit. All non-manufacturing costs are fixed and are budgeted at $2.7 million for the coming year.
At the end of the year, the costs analyst reported that the sales activity variance for the year was $900,000 unfavorable.
The following is the actual income statement (in thousands of dollars) for the year.
| Sales revenue | $ | 37,538 | |
| Less variable costs | |||
| Direct materials | 3,968 | ||
| Direct labor | 1,160 | ||
| Variable overhead | 1,080 | ||
| Total variable costs | $ | 6,208 | |
| Contribution margin | $ | 31,330 | |
| Less fixed costs | |||
| Fixed manufacturing overhead | 1,200 | ||
| Non-manufacturing costs | 1,380 | ||
| Total fixed costs | $ | 2,580 | |
| Operating profit | $ | 28,750 | |
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 | |||||||||||
| Actual | Manufacturing Variances | Non-Manufacturing Variances | Sales Price Variance | Flexible Budget | Sales Activity Variance | Master Budget | |||||
| Sales revenue | $37,538 | F | U | ||||||||
| Materials | 3,968 | F | F | ||||||||
| Direct labor | 1,160 | F | F | ||||||||
| Variable overhead | 1,080 | F | F | ||||||||
| Total variable costs | $6,208 | F | $0 | F | $0 | ||||||
| Contribution margin | $31,330 | F | F | $0 | U | $0 | |||||
| Fixed costs: | |||||||||||
| Manufacturing | 1,200 | F | |||||||||
| Non-manufacturing | 1,380 | F | |||||||||
| Total fixed costs | $2,580 | F | F | $0 | $0 | ||||||
| Operating profits | $28,750 | F | F | F | $0 | U | $0 | ||||
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