(a) Hart Labs, Inc. provides mad cow disease testing for both state and federal
ID: 2537495 • Letter: #
Question
(a)
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.Direct materials (2 test tubes @ $1.90 per tube) $3.80 Direct labor (1 hour @ $31 per hour) 31.00 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 $53.80
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 1,400 tests were conducted, resulted in the following:
Direct materials (2,912 test tubes) $5,242 Direct labor (1,470 hours) 42,630 Variable overhead 8,778 Fixed overhead 16,450
Monthly budgeted fixed overhead is $17,400. Revenues for the month were $93,800, and selling and administrative expenses were $4,000.
Explanation / Answer
Materials price variance (Actual price -standard price)*Actual qty purchased (5,242 - 2912*1.90) 290.8 F Material Quantity variance (Actual qty - standard qty )*actual qty used (2912 -1400*2)*1.9 212.8 U Labor price variance (Actual price -standard price)*Actual hours (42,630 - 1470*31) 2,940 F labor quantity variance (actual hours - standard hours)*standard rate (1,470 - 1400*1)*31 2170 U
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