LINK TO TEXT Pace Labs, Inc. provides mad cow disease testing for both state and
ID: 2408067 • Letter: L
Question
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Pace Labs, Inc. provides mad cow disease testing for both state and federal governmental agricultural agencies. Because the company’s customers are governmental agencies, prices are strictly regulated. Therefore, Pace Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical test.Direct materials (2 test tubes @ $2.00 per tube) $ 4.00 Direct labor (1 hour @ $32 per hour) 32.00 Variable overhead (1 hour @ $7 per hour) 7 Fixed overhead (1 hour @ $12 per hour) 12 Total standard cost per test $55.00
The lab does not maintain an inventory of test tubes. Therefore, the tubes purchased each month are used that month. Actual activity for the month of November 2014, when 1,300 tests were conducted, resulted in the following:
Direct materials (2,665 test tubes) $ 5,010 Direct labor (1,352 hours) 40,560 Variable overhead 8,502 Fixed overhead 14,911
Monthly budgeted fixed overhead is $17,160. Revenues for the month were $84,500, and selling and administrative expenses were $3,590.
Explanation / Answer
Material price variance = (2*2665-5010) = 320 Favorable
Material quantity variance = (1300*2-2665)*2 = 130 Unfavorable
Labour price variance = (32*1352-40560) = 2704 Favorable
Labour quantity variance = (1300-1352)*32 = 1664 Unfavorable
Total overhead variance = 23413-(1300*1*19) = 1287 Favorable
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