Problem 11-5A (Part Level Submission) Pace Labs, Inc. provides mad cow disease t

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.

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 1,400 tests were conducted, resulted in the following:

Monthly budgeted fixed overhead is $15,720. Revenues for the month were $92,400, and selling and administrative expenses were $4,120.

Direct materials (2 test tubes @ $1.00 per tube) $ 2.00 Direct labor (1 hour @ $32 per hour) 32.00 Variable overhead (1 hour @ $6 per hour) 6 Fixed overhead (1 hour @ $12 per hour) 12     Total standard cost per test $52.00

Explanation / Answer

Total overhead variance=Budgeted -actual=1,456*6+15,720)-(8,330+15,960)=$166 Favourable.

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