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. Direct materials (2 test tubes @ $1.00 per tube) $2.00 30.00 Direct labor (1 hour @ $30 per hour) Variable overhead (1 hour @ $6.00 per hour) 6.00 Fixed overhead (1 hour @ $12.00 per hour) 12.00 $50.00 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 2020, when 800 tests were conducted, resulted in the following. Direct materials (1,680 test tubes) $1,512 Direct labor (824 hours) 23,896 Variable overhead 4,320 Fixed overhead 9,600 Monthly budgeted fixed overhead is $15,600. Revenues for the month were $52,000, and selling and administrative expenses were $3,500. V Your answer is correct. Compute the price and quantity variances for direct materials and direct labor. Materials price variance Favorable 168 Materials quantity variance |Unfavorable 80 Labor price variance Favorable 824 Labor quantity variance Unfavorable 720

Answer 1

Explanation for the Unfavourable Variances:

1..

For D/M Quantity Variance

Test tubes consumed /test has exceeded the standard by (1680/800)=2.1-2= 0.1 per test tube--resulting in a total UNF- variance due to quantity of 800*0.1* $ 1=80

For D/L Quantity Variance

Labor hrs. consumed /test has exceeded the standard by (824/800)=1.03-1= 0.03 hrs. per test --resulting in a total UNF- variance due to labor hrs. of 800*0.03*30= 720

2..

For D/M Quantity Variance

Test tubes consumed /test has exceeded the standard by (3050/1475)=2.068-2= 0.068 per test tube--resulting in a total UNF- variance due to quantity of 1475*0.068*1.46= 146

For D/L Quantity Variance

Labor hrs. consumed /test has exceeded the standard by (1550/1475)=1.0508-1= 0.0508 hrs. per test --resulting in a total UNF- variance due to labor hrs. of 1475*0.0508*24= 1800

Net OH variance (F) for 2..
	Std./bud.	Actuals	F/(UF)
VOH	8850	7400	1450
FOH	14000	15000	-1000
Total Ohs	22850	22400	450

2.. Hart Labs inc.
Income statement
Sales revenue		75000
Cost of service provided(1475*42.92)		63307
Gross profit(at std.)		11693
Variances:
MPV	183
LPV	1550
OH V	450
MQV	-146
LQV	-1800
Total variance		237
Gross profit(actual)		11930
Sell.& admn. Exp.		5000
Net income/(loss)		6930