Question

Sheridan 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, Sheridan Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical test. $2.80 Direct materials (2 test tubes @ $1.40 per tube) Direct labor (1 hour @ $30 per hour) Variable overhead (1 hour @ $6.00 per hour) Fixed overhead (1 hour @ $13.00 per hour) Total standard cost per test 30.00 6.00 13.00 $51.80 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 2020, when 1,200 tests were conducted, resulted in the following. Direct materials (2,520 test tubes) Direct labor (1,236 hours) Variable overhead Fixed overhead $3,276 35,844 7,068 14,592 Monthly budgeted fixed overhead is $19,110. Revenues for the month were $79,200, and selling and administrative expenses were $4,300. (a) Your answer is correct. Compute the price and quantity variances for direct materials and direct labor. Materials price variance Favorable Materials quantity variance Unfavorable Labor price variance 1236 Favorable Labor quantity variance 1080) Unfavorable

Answer 1

Ans.	Unfavorable variances will be shows with negative sign and Favorable variances will be
	shown positively.
	Particulars	Amount	Amount
	Sales revenue		$79,200
	Cost of service provided		$62,160
	Gross provided (at standard)		$17,040
	Variances:
	Materials price variance	$252
	Materials quantity variance	-$168
	Labor price variance	$1,236
	Labor quantity variance	-$1,080
	Overhead variance	$1,140	$1,380
	Gross profit (actual)		$15,660
	Selling and Administrative Expenses		$4,300
	Net Income / (Loss)		$11,360