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. 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. 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. Sales revenue $50,638 Less variable costs Direct materials 5,268 Direct labor 4,010 Variable overhead 13,980 Total variable costs $23,258 Contribution margin $27,380 Less fixed costs Fixed manufacturing overhead 1,250 Non-manufacturing costs 1,430 Total fixed costs $2,680 Operating profit $24,700 During the year, the company purchased 216,000 pounds of material and employed 60,400 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.

Missing word at inception of the 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 140000 liters at a budgeted price of $375 per liter this year. The standard direct cost sheet for one liter of preservative follows: Direct materials (2 pounds at $24) $48 Direct labor (0.5 hours at $64) $32"

a . Direct Material Price Variance = (Actual Qty * Std. Price) - (Actual Qty * Actual Price)

= (216,000 * $24) - ($ 5,268,000)

= $5,184,000 - $5,268,000

= $84,000 U

Direct Material Efficiency Variance = (Actual Qty - Std. Qty) * Std. Price

= (216,000 – 280,000) * $24

= -64,000 * $24

= $1,536,000 U

b. Direct Labor Price Variance = (Actual Hrs * Std. Rate) - (Actual Hrs *  Actual Rate)

= (60,400 * $ 64) - ($ 4,010,000)

= $3,865,600 - $4,010,000

= $144,400 U

Direct Labor Efficiency Variance = Std. Rate *(Std. Hrs - Actual Hrs)

= $ 64 * (70,000 - 60,400)

= $614,400 F

c. Variable OH Price Variance = (Std. Hrs * Std. Rate) - (Actual Variable OH)

= (70,000 * $220) - 1,398,000

= $ 15,400,000 - $13,980,000

= $1,420,000 F

Variable OH Efficiency Variance = (Std. Hrs - Actual Hrs) * Std. Rate

= (70,000 - 60,400) × $ 220

= $2,112,000 F

Workings

Standard Qty = 140,000 litres × 2 Pound per litre = 280,000 pounds

Standard Hrs = 140,000 litres × 0.5 hrs per litre = 70,000 hrs

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