Problem 11-5A Hart Labs, Inc. provides mad cow disease testing for both state an
ID: 369312 • Letter: P
Question
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.
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 1,000 tests were conducted, resulted in the following:
Monthly budgeted fixed overhead is $17,160. Revenues for the month were $65,000, and selling and administrative expenses were $4,900.
Compute the price and quantity variances for direct materials and direct labor.
Materials quantity variance $
Labor price variance $
Labor quantity variance $
Compute the total overhead variance.
Prepare an income statement for management.
Direct materials (2 test tubes @ $1.00 per tube) $2.00 Direct labor (1 hour @ $31 per hour) 31.00 Variable overhead (1 hour @ $7.00 per hour) 7.00 Fixed overhead (1 hour @ $12.00 per hour) 12.00 Total standard cost per test $52.00Explanation / Answer
Materials price variance = Actual quantity used * Standard price - Actual quantity used * Actual price
= 2020*1 - 1697 = 323 Favorable
Materials quantity variance = Standard price * Standard quantity - Standard price * Actual quantity
= 1 * 2000 - 1 * 2020 = - 20 Unfavorable
Labor price variance = Actual labor used * Standard rate - Actual labor used * Actual rate
= 1040 * 31 - 30160 = 2080 Favorable
Labor quantity variance = Standard rate * Standard quantity - Standard rate * Actual quantity
= 31 * 1000 - 31 * 1040 = - 1240 Unfavorable
Total overhead variance = Standard overhead - Actual overhead = 1000*(7+12) - (5700 + 12340) = 960 Favorable