Problem 11-5A LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT LINK TO TEXT L
ID: 2581352 • Letter: P
Question
Problem 11-5A
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Problem 11-5A
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 @ $1.20 per tube) $2.40 Direct labor (1 hour @ $30 per hour) 30.00 Variable overhead (1 hour @ $6.00 per hour) 6.00 Fixed overhead (1 hour @ $13.00 per hour) 13.00 Total standard cost per test $51.40
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 2017, when 1,300 tests were conducted, resulted in the following:
Direct materials (2,678 test tubes) $2,812 Direct labor (1,352 hours) 37,856 Variable overhead 7,657 Fixed overhead 15,821
Monthly budgeted fixed overhead is $17,160. Revenues for the month were $88,400, and selling and administrative expenses were $4,200.
Explanation / Answer
Solution:
Part 1(a) --- Material Price Variance
Material Price Variance is the variance arises in the material cost due to difference in actual material purchase price from standard material price. Mathematically, it is calculated as below:
Material Price Variance = Actual Quantity (Standard Price – Actual Price)
Note --- Here actual quantity means actual quantity of material PURCHASED. If the question does not provide the information about material purchase, it is taken as equal to material consumed.
Direct Material Price Variance
Actual Price (AP) (2812 / 2678)
$1.05
per test tube
Standard Price (SP)
$1.20
per tube
Variance or Difference in Price
$0.15
per tube
x Actual Quantity PURCHASED
2678
tubes
Material Price Variance
$402
Favorable
Part 1 (b) ---- Material Quantity/Efficiency/Usage Variance
Material Efficiency (Usage) Variance measures variance in material cost due to usage/consumption of materials. It is calculated as below:
Material Quantity Variance = Standard Price (Standard Quantity for Actual Production – Actual Quantity USED)
Note --- Here actual quantity means actual quantity of material CONSUMED/USED
Direct Material Quantity Variance
Standard Quantity Allowed for actual production:
Actual Production/Activity
1300
tests
x Allowed Standard Quantity Per Unit
2
test tubes
Total Standard Quantity Allowed for actual production (SQAP)
2600
test tubes
Actual Quantity USED (AQU)
2678
test tubes
Variance or Difference in Quantity
78
test tubes
x Standard Price (SP)
$1.20
per pound
Material Quantity Variance
$94
Unfavorable
Part 1(c) Labor Rate/Price Variance
Labor Price Variance – It arises due to difference in actual rate paid from standard rate. It is calculated as below:
Labor Price Variance = Actual Time (Standard Rate per hour – Actual Rate per hour)
Here, actual time means time for which wage has been paid.
Labor Rate Variance
Actual Hourly Rate (AHR)
(Actual labor cost $37,856 / Number of hour worked 1352)
$28.00
Per Hour
Standard Hourly Rate (SHR)
$30.00
Per Hour
Variance or Difference in Rate
$2.00
Per Hour
x Actual Labor Hours worked
1352
Hours
Labor Rate Variance
$2,704
Favorable
Part1(d) Labor Efficiency / Usage Variance
Labor Efficiency Variance – It arises due to variation in the working hours from the set standard.
Labor Efficiency Variance = Standard Rate (Std. hours for actual production – Actual Hours)
Labor Efficiency Variance
Standard Hours Allowed for actual production:
Actual Production/Activity
1300
tests
x Allowed Standard Hours Per Unit
1
hours
Total Standard Hours Allowed for actual production (SHAP)
1300
hours
Actual Labor Hours Worked (AH)
1352
hours
Variance or Difference in Quantity (AH - SHAP)
52
hours
x Standard Hourly Rate (SHR)
$30
per hour
Labor Efficiency Variance
$1,560
Unfavorable
Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you
Pls ask separate question for remaining parts.
Direct Material Price Variance
Actual Price (AP) (2812 / 2678)
$1.05
per test tube
Standard Price (SP)
$1.20
per tube
Variance or Difference in Price
$0.15
per tube
x Actual Quantity PURCHASED
2678
tubes
Material Price Variance
$402
Favorable