Hart Labs, Inc. provides mad cow disease testing for both state and federal gove

Question

Hart 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, Hart Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical 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 1,100 tests were conducted, resulted in the following:

Monthly budgeted fixed overhead is $17,400. Revenues for the month were $73,700, and selling and administrative expenses were $4,500.

A) Compute the price and quantity variances for direct materials and direct labor. (Round answers to 0 decimal places, e.g. 5,275.)
B) Compute the total overhead variance.

Direct materials (2 test tubes @ $1.90 per tube) $3.80 Direct labor (1 hour @ $30 per hour) 30.00 Variable overhead (1 hour @ $7.00 per hour) 7.00 Fixed overhead (1 hour @ $12.00 per hour) 12.00     Total standard cost per test $52.80

Explanation / Answer

A) Direct material price variance = (Actual price-Standard price)*Actual quantity purchased = = (3933/2222-1.90)*2222 = $        288.80 Favorable Direct material quantity variance = (Actual quantity used-Standard quantity)*Standard price = (2222-1100*2)*1.9 = $          41.80 Unfavorable Direct labor price variance = (Actual rate-Standard rate)*Actual DLH = (33495/1155-30)*1155 = $    1,155.00 Favorable Direct labor quantity variance = (Actual DLH-Standard DLH)*Standard rate = (1155-1100*1)*30 = $    1,650.00 Unfavorable B) Total overhead variance = Actual overhead-Overhead assigned = (7106+13101-1100*19) = $        693.00 Favorable

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