ural agencies. Because the company\'s customers are governmental agencies, stric
ID: 2511419 • Letter: U
Question
ural agencies. Because the company's customers are governmental agencies, strictly regulated. Therefore, Hart Labs must constantly monitor and control its P23-5A H art Labs, Inc. provides mad cow disease testing for both state and federal govern testing costs. Shown below are the stan costs for a typical test Direct materials (2 test tubes@ $1.46 per tube) Direct labor (1 hour $24 per hour) Variable overhead (1 hour $6 per hour) Fixed overhead (1 hour@ $10 per hour) $ 2.92 24.00 6.00 0.00 $42.92 Total standard cost per test The lab does not maintain an inventory of test tubes. As a result, the tubes purchased each month are used that month. Actual activity for the month of November 2017, when 1,475 tests were conducted, resulted in the following Direct materials (3,050 test tubes) Direct labor (1,550 hours) Variable overhead Fixed overhead $ 4,270 35,650 7,400 15,000 Monthly budgeted fixed overhead is $14,000. Revenues for the month were $75,000, and selling and administrative expenses were $5,000 Instructions (a) Compute the price and quantity variances for direct materials and direct labor. (b) Compute the total overhead variance (c) Prepare an income statement for management (d) Provide possible explanations for each unfavorable varianceExplanation / Answer
a) Material price Variance = (1.40-1.46)*3050= $183F
Material Quantity Variance = (3050-1475*2)*1.46= $146A
Labor rate variance =(23-24)1550 = $1550F
Labor efficiency variance = (1550-1475)*24 = $1800A
B)Budgeted variable overhead = 1475*1*6 = $8850
Budgeted fixed overhead =1475*1*10 = $14750
Total budgeted overhead = $23600
Total actual overhead = $22400
Overhead variance =$1200F
c) Income Statement
Sales $75000
Less:
Direct Materials $4270
Direct labor $35650
variable overhead $7400
Fixed overhead $15000
Selling expenses $5000
Net Profits $7680
D) Material quantity variance & labor efficiency variance are unfavourable due to higher quantity was used as compared to the standard quantity.
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