Problem 11-5A (Part Level Submission) Prepare an income statement for management

Question

Problem 11-5A (Part Level Submission)

Prepare an income statement for management.

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.

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 900 tests were conducted, resulted in the following:

Monthly budgeted fixed overhead is $16,080. Revenues for the month were $59,400, and selling and administrative expenses were $4,100.

Direct materials (2 test tubes @ $1.90 per tube) $3.80 Direct labor (1 hour @ $31 per hour) 31.00 Variable overhead (1 hour @ $6.00 per hour) 6.00 Fixed overhead (1 hour @ $12.00 per hour) 12.00     Total standard cost per test $52.80

Explanation / Answer

Hart Labs, Inc.

income statement

for the month ended November 2017

working Note:

1 Standard Cost for 900 test

Particulars Amount $ Service Revenue (a) 59400 Cost of service provided (Standard) (wn1) (b) 47520 Gross Profit (at standard) (c)= (a)-(b) 11880 Variances Material Price (1.90 - 1.71) 1836 348.84 (F) Material Quantity (1800-1836) 1.90 68.4 (UF) Labor Price (31 - 29) 945 1890 (F) Labor Quantity (900 - 945) 31 1395 (UF) Variable Overhead Expenditure (6-5.14)945 812.7 (F) Variable Overhead Efficiency (900-945)6 270 (UF) Fixed Overhead Expenditure ( 16080-10512) 5568 (F) Fixed Overhead Volume (10800 - 16080) 5280 (UF) Total Variance (d) 1606.14 (F) Gross Profit (actual) (e)= (c) +(d) 13486.14 selling and administrative expenses (f) 4100 Net Profit (g) = (e) - (f) 9386.14

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