Question

Problem 24-05A a-c (Video) (Part Level Submission) 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 @ $1.46 per tube) Direct labor (1 hour @ $24 per hour) Variable overhead (1 hour @ $6.00 per hour) Fixed overhead (1 hour @ $10.00 per hour) Total standard cost per test $2.92 24.00 6.00 10.00 $42.92 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 1,475 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.

Answer 1

Answer -

• Direct Material Price Variance = Actual Quantity*(Standard price less Actual Price)

(3,050* ($ 1.46 - $ 1.40 ($ 4,270/3,050 test tubes))

Direct Material Price Variance $ 183 Favorable

• Direct Material Quantity Variance = (Standard Quantity less Actual Quantity)*Standard price

[2950 (1,475 tests * 2 test tubes) - 3,050] * $ 1.46

Direct Material quantity Variance $146 Unfavorable

• Direct Labor Rate Variance = Actual Hours*(Standard price less Actual Price)

1,550 [$ 24.00 - $ 23.00 ($ 35650/1,550 test tubes)]

Direct Labor Rate Variance $ 1550 Favorable

• Direct Labor Efficiency Variance = (Standard Hours less Actual Hours)*Standard price [1,475 (1,475 tests * 1 hour per test) - 1,550 ] $ 24.00

Direct Labor Efficiency Variance $ 1800 Unfavorable

• Total overhead variance = Standard - actual

1475* (10+6) - 7400+15000

Total overhead variance = $1200 Favourable

Material Price Variance Material Quantity Variance Labor Price Variance Labor Quantity Variance 183 Favorable 146 Unfavorable 1550 Favorable 1800 Unfavorable Total Overhead Variance 1200 Favorable 75000 63307 11693 HART LABS, INC Income Statement For the Month Ended November 30, 2020 Sales revenue Cost of goods sold (at standard) (1475*$42.92) Gross profit (at standard) Variances Material price 183 Favorable Materials quantity 146 Unfavorable Labor price 1550 Favorable Labor quantity 1800 Unfavorable Overhead 1200 Favorable Total variance - favorable Gross profit (actual) Selling and administrative expenses Net income/(Loss) 987 Favorable 12680 5000 76801