Problem 11-5A (Part Level Submission) Pace Labs, Inc. provides mad cow disease t
ID: 2486123 • Letter: P
Question
Problem 11-5A (Part Level Submission) Pace 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, Pace 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 per hour) Fixed overhead (1 hour @ $10 per hour) $ 2.92 24.00 6 10 $42.92 Total standard cost per test The lab does not maintain an inventory of test tubes. Therefore, the tubes purchased each month are used that month. Actual activity for the month of November 2014, when 1,500 tests were conducted, resulted in the following: Direct materials (3,050 test tubes) Direct labor (1,600 hours) Variable overhead Fixed overhead $ 4,209 36,800 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.Explanation / Answer
a) Material price variance = ( Actual price - stabdard price) * actual quantity = ( 4209/3050 - 1.46) * 3050 = ( 1.38 - 1.46) * 3050 = 0.08 * 3050 = 244 favourable Material quantity variance = ( Actual quantity - standard quantity) * standard price = ( 3050 - 2 * 1500) * 1.46 = 50 * 1.46 = 73 unfavourable labor price variance = ( Actual rate - standard rate) * actual hours = ( 36800/1600 - 24) * 1600 = ( 23 - 24) * 1600 = 1600 favourable labor quantity variance = ( Actual hours - standard hours) * standard rate = ( 1600 - 1*1500) * 24 = 100 * 24 = 2400 unfavourable b) Total overhead variance Fixed OH total variance = Actual fixed OH - Actual output 8 FOAR = 15000 - 1500 *10 = 0 Variable OH total variance = actual variable OH - Actual output * VOAR = 7400 - 1500*6 = 7400 - 9000 = 1600 FAVOURABLE Total overhead variance = 0 + 1600 favourable = 1600 favourable