Problem 11-5A Problem 11-5A Hart Labs, Inc. provides mad cow disease testing for
ID: 2581631 • Letter: P
Question
Problem 11-5A
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 @ $1.00 per tube) $2.00 Direct labor (1 hour @ $30 per hour) 30.00 Variable overhead (1 hour @ $7.00 per hour) 7.00 Fixed overhead (1 hour @ $13.00 per hour) 13.00 Total standard cost per test $52.00
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 1,200 tests were conducted, resulted in the following:
Direct materials (2,472 test tubes) $2,052 Direct labor (1,236 hours) 34,608 Variable overhead 8,160 Fixed overhead 14,976
Monthly budgeted fixed overhead is $16,900. Revenues for the month were $79,200, and selling and administrative expenses were $4,000.
Explanation / Answer
1) Direct Material Price Variance = (Standard Price - Actual Price)Actual Quantity
= [$1-($2,052/2,472)]*2,472 = $2,472-$2,052 = $420 Favourable
Direct Material Quantity Variance = (Standard Qty - Actual Qty)*Standard Price
= [(1,200 tests*2) - 2,472]*$1 = -$72 Unfavourable
Direct Labor Price Variance = (Standard Rate - Actual Rate)*Actual Hours
= [$30 - (34,608/1,236)]*1,236 = ($30-$28)*1,236 = $2,472 Favourable
Direct Labor Quantity Variance = (Standard Hours - Actual Hours)*Standard Rate
= [(1,200 tests*1 hour) - 1,236]*$30 = -$1,080 Unfavourable
2) Total Variable Overhead Variance = Standard overhead - Actual overhead
= (1,200 tests*$7) - $8,160 = $240 Favourable
Total Fixed Overhead Variance = Absorbed Overhead - Actual Overhead
= (1,200 tests*$13) - $14,976 = $624
3) Hart Labs, Inc.
Income Statement for the month of November 2017 (Amount In $)
Revenues 79,200 Less: Costs Direct Materials (2,052) Direct Labor (34,608) Variable Overhead (8,160) Fixed Overhead (14,976) Selling & Administrative expenses (4,000) Net Income 15,404