Question

WileyPLUS Support 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) Direct labor(1 hour @ $31 per hour) Variable overhead (1 hour @ $7.00 per hour) Fixed overhead (1 hour $12.00 per hour) Total standard cost per test $3.80 31.00 7.00 12.00 $53.80 The lab does not maintain an inventory of test tubes. As aresult, the tubes purchased each month are used that month. Actual activity for the month of November 2020, when 1.400 tests were conducted, resulted in the following Direct materials (2.940 test tubes) $5.292 Direct labor (1.470 hours) 42.630 Variable overhead 8.778 Fixed overhead 16450 Monthly budgeted fixed overheads $17.400 Revenues for the month were $23.800, and selling and administrative expenses were $4.000.

Answer 1

Direct material Price variance=

(Std.price/qty.-Actual price/qty.)*Actual qty.

(1.9-(5292/2940))*2940=

294

F

Direct material Quantity variance=

(Std.qty. allowed   For actual prodn.-Actual qty.)*std.price qty.

((1400*2)-2940)*1.90=

-266

UF

Direct Labor rate (Price) variance=

(Std.DL Rate/hr.-Actual DL Rate/hr.)*Actual hrs.

(31-(42630/1470))*1470=

2940

F

Direct Labor Efficiency (qty.) variance=

(Std.allowed DL hrs. For actual prodn.-Actual DL hrs.)*std.DL rate/hr.

((1400*1)-1470)*31=

-2170

UF

Standard cost-Flexible budget (1400 tests)
		Tot. std.cost	Actual cost	Variance(Std.-Actual)
D/M	1400*2*1.90=	5320	5292	28	(294-266)
D/L	1400*1*31=	43400	42630	770	(2940-2170)
VOH	1400*1*7=	9800	8778	1022
FOH		17400	16450	950
Total std. COGS		75920	73150	2770

Income statement
Sales revenue		93800
COGS		75920
Gross profit (at standard)		17880
Variances
Material Price variance	294
Material Quantity variance	-266
Labor Price Variance	2940
Labor Quantity Variance	-2170
OH variance(1022+950)	1972
Total Variance		2770
Gross profit (actual)		20650
Selling & admn.exp.		4000
Net income		16650