Problem 23-5A (part level submission) (a) Problem 23-5A (part level submission)

Question

Problem 23-5A (part level submission)

(a)

Problem 23-5A (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.
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 per hour) 7 Fixed overhead (1 hour @ $12 per hour) 12     Total standard cost per test $52.00
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 1,000 tests were conducted, resulted in the following:
Direct materials (2,050 test tubes) $ 1,784 Direct labor (1,040 hours) 30,160 Variable overhead 6,600 Fixed overhead 11,500
Monthly budgeted fixed overhead is $16,440. Revenues for the month were $67,000, and selling and administrative expenses were $4,630.

Explanation / Answer

standard costs 1,000 tests Difference Direct materials (2 test tubes @ $1.00 per tube) 2 2,050 1,784 266 Direct labor (1 hour @ $31 per hour) 31 32240 30,160 2,080 Variable overhead (1 hour @ $7 per hour) 7 7280 6,600 680 Fixed overhead (1 hour @ $12 per hour) 12 12480 11,500 980 Total standard cost per test 52 54,050 50,044 4,006 Materials price variance = 1784/1000 = 1.78 Materials quantity variance = 2050-1000=1050 Labor price variance = 32.240-30.16=2.8

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