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 116,000 liters at a budgeted price of $195 per liter this year. The standard direct cost sheet for one liter of the preservative follows.

Direct materials	(2 pounds @ $12)	$	24
Direct labor	(0.5 hours @ $40)		20

Variable overhead is applied based on direct labor hours. The variable overhead rate is $100 per direct-labor hour. The fixed overhead rate (at the master budget level of activity) is $50 per unit. All non-manufacturing costs are fixed and are budgeted at $2.0 million for the coming year.

At the end of the year, the costs analyst reported that the sales activity variance for the year was $606,000 unfavorable.

Required
Prepare a flexible budget for Paynesville for the year

PAYNESVILLE CORPORATION
Flexible Budget
(thousands of dollars)
Sales revenue
Variable costs:
Materials
Direct labor
Variable overhead
Total variable costs
Contribution margin
Fixed costs:
Manufacturing overhead
Non-manufacturing
Total fixed costs
Operating profits

Answer 1