Question

Hi-Tek Labs performs steroid testing services for colleges and universities. Because the company works only with educational institutions, the price of each test is strictly regulated. Therefore, the costs incurred must be carefully monitored and controlled. Shown below are the standard costs for a typical test:

Direct materials (1 Petri dish at $1.80 per dish)	$ 1.80
Direct labour (0.5 hours at $20.50 per hour)	10.25
Variable overhead (0.5 hours at $8 per hour)	4.00
Fixed overhead (0.5 hours at $5 per hour)	2.50
Total standard cost per test	$18.55

The lab does not maintain an inventory of Petri dishes. Therefore, the dishes purchased each month are used that month. Actual activity for the month of May 2020, when 2,500 tests were conducted, resulted in the following:

Direct materials (2,530 dishes)	$ 5,060
Direct labour (1,240 hours)	26,040
Variable overhead	10,100
Fixed overhead	5,700

Monthly budgeted fixed overhead is $6,000. Revenues for the month were $55,000, and selling and administrative expenses were $2,000.

Instructions

a.  

Calculate the price and quantity variances for direct materials and direct labour.

LQV $205 F

b.  

Calculate the total overhead variance.

c.  

Prepare an income statement for management.

d.  

Provide possible explanations for each unfavourable variance.

explain well only part c and d

Answer 1

consumed than budgeted Quantity. solution & (C) Income statement for management & poroticulars Amount (6) Revenue 5Sood Less Direct materials 5060 Direct labor a foto variable overhead 10100 fired overhead 5700 Selling expanses 2000 profit 6100 D Explanations for each Infavourable variancese Material price variance is unfavorable $506 actual price at which material are purchased higher than standard price of each material price Material usage variance is unfavorable $54 Because actual quantity for output is more because Labor sate variance is unfavorable $620 Because actual labor rate per hour is more than budgeted labor rate per hour.