Exercise 16-40 (Algo) Variable Cost Variances (LO 16-5)Golden Food Products produces special-formula pet food. The company carries no inventories. The master budget calls for the company to manufacture and sell 129,000 cases at a budgeted price of $60 per case this year. The standard direct cost sheet for one case of pet food follows:Direct materials (3 pounds @ $2) $ 6Direct labor (0.25 hours @ $32) 8Variable overhead is applied based on direct labor-hours. The variable overhead rate is $16 per direct labor-hour. The fixed overhead rate (at the master budget level of activity) is $10 per unit. All nonmanufacturing costs are fixed and are budgeted at $2.2 million for the coming year.At the end of the year, the costs analyst reported that the sales activity variance for the year was $336,000 favorable.The following is the actual income statement (in thousands of dollars) for the year for Golden Food Products:Sales revenue $ 16,800Less variable costs  Direct materials 836Direct labor 1,028Variable overhead 551Total variable costs $ 2,415Contribution margin $ 14,385Less fixed costs  Fixed manufacturing overhead 2,410Nonmanufacturing costs 2,143Total fixed costs $ 4,553Operating profit $ 9,832During the year, the company purchased 329,000 pounds of material and employed 35,020 hours of direct labor.Required:Compute the direct materials price and efficiency variances.Compute the direct labor price and efficiency variances.Compute the variable overhead price and efficiency variances.Note: For all requirements, enter your answers in whole 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.

To solve this problem, we need to calculate the price and efficiency variances for direct materials, direct labor, and variable overhead.

1. Direct Materials Variance:

First, we need to calculate the standard cost of materials purchased. The standard cost per pound is $2 and the company purchased 329,000 pounds, so the standard cost is 329,000 *$2 = $658,000.

The actual cost of materials was $836,000.

The direct materials price variance is the difference between the actual cost and the standard cost, which is $836,000 -$658,000 = $178,000. Since the actual cost is higher than the standard cost, this is an unfavorable variance.

The direct materials efficiency variance is the difference between the actual quantity used and the standard quantity allowed for the actual output, multiplied by the standard price per unit. The standard quantity allowed for the actual output is 3 pounds per case * 129,000 cases = 387,000 pounds. The actual quantity used is 329,000 pounds. So, the efficiency variance is (329,000 - 387,000) * $2 = -$116,000. Since the actual quantity used is less than the standard quantity, this is a favorable variance.

2. Direct Labor Variance:

The standard cost of labor is 0.25 hours per case * $32 per hour * 129,000 cases =$1,032,000.

The actual cost of labor was $1,028,000.

The direct labor price variance is the difference between the actual cost and the standard cost, which is $1,028,000 -$1,032,000 = -$4,000. Since the actual cost is lower than the standard cost, this is a favorable variance.

The direct labor efficiency variance is the difference between the actual hours worked and the standard hours allowed for the actual output, multiplied by the standard rate per hour. The standard hours allowed for the actual output is 0.25 hours per case * 129,000 cases = 32,250 hours. The actual hours worked is 35,020 hours. So, the efficiency variance is (35,020 - 32,250) * $32 =$88,640. Since the actual hours worked is more than the standard hours, this is an unfavorable variance.

3. Variable Overhead Variance:

The standard cost of variable overhead is 0.25 hours per case * $16 per hour * 129,000 cases =$516,000.

The actual cost of variable overhead was $551,000.

The variable overhead price variance is the difference between the actual cost and the standard cost, which is $551,000 -$516,000 = $35,000. Since the actual cost is higher than the standard cost, this is an unfavorable variance.

The variable overhead efficiency variance is the difference between the actual hours worked and the standard hours allowed for the actual output, multiplied by the standard rate per hour. The standard hours allowed for the actual output is 0.25 hours per case * 129,000 cases = 32,250 hours. The actual hours worked is 35,020 hours. So, the efficiency variance is (35,020 - 32,250) * $16 =$44,320. Since the actual hours worked is more than the standard hours, this is an unfavorable variance.