question archive Paynesville Corporation manufactures and sells a preservative used in food and drug manufacturing
Paynesville Corporation manufactures and sells a preservative used in food and drug manufacturing
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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 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.
Direct materials (2 pounds @ $24) $48
Direct labor (0.5 hours @ $64) 32
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 1,210
Variable overhead 1,130
Total variable costs $7,608
Contribution margin $43,030
Less fixed costs
Fixed manufacturing overhead 1,250
Non-manufacturing costs 1,430
Total fixed costs $2,680
Operating profit $40,350
Required:
Construct a profit variance analysis.
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Profit variance analysis. |
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Manufacturing Variance |
Non Manufacturing Variance |
Sales Price Variance |
Flexible Budget |
Sales Activity Variance |
Master Budget |
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Actual |
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| 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 | ||||||
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Contribution margin |
$ 43,030 |
$ 17,852 |
F |
$ 388 |
F |
$ 24,790 |
$ 1,110 |
U |
$ 25,900 |
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| 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 | ||||
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Operating Profit |
$ 40,350 |
$ 32,002 |
F |
$ 1,770 |
F |
$ 388 |
F |
$ 6,190 |
$ 1,110 |
U |
$ 7,300 |
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Actual Units Sold: |
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| Selling price | a | $ 375 | |||||||||||
| Standard Cost | b | $ 190 | |||||||||||
| ($48+$32+$110) | |||||||||||||
| Contribution 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 | ||||||||||||
Step-by-step explanation
- Variance analysis describes the quantitative investigation of the difference between the actual and the planned behavior and being used to maintain control over a business.
