Pace Labs, Inc. provides mad cow disease testing for both state and federal gove

Question

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 @ $1.46 per tube) $ 2.92 Direct labor (1 hour @ $24 per hour) 24.00 Variable overhead (1 hour @ $6 per hour) 6 Fixed overhead (1 hour @ $10 per hour) 10 Total standard cost per test $42.92 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 1,500 tests were conducted, resulted in the following: Direct materials (3,050 test tubes) $ 4,209 Direct labor (1,600 hours) 36,800 Variable overhead 7,400 Fixed overhead 15,000 Monthly budgeted fixed overhead is $14,000. Revenues for the month were $75,000, and selling and administrative expenses were $5,000. (a) Compute the price and quantity variances for direct materials and direct labor. (b) Compute the total overhead variance.

Explanation / Answer

Pace Labs Inc. Standard Cost of A test Details Qty /Hr/unit Rate Cost Test tubes                           2.00              1.46              2.92 Direct Labor                           1.00           24.00            24.00 Variable OH                           1.00              6.00              6.00 Fixed OH                           1.00           10.00            10.00 Total Std cost            42.92 Actual Results actual No of test Actual Qty /Hr Actual Rate Actual Cost Std Qty /Hr for Actual Output Std cost for actual output Test Tubes                  1,500.00     3,050.00              1.38       4,209.00                3,000.00               4,380.00 Direct Labor     1,600.00            23.00     36,800.00                1,500.00            36,000.00 Variable OH     1,600.00              4.63       7,400.00                1,500.00               9,000.00 Fixed OH     15,000.00            15,000.00 Direct Material Price variance = Actual Qty *( Actual rate-std rate)          =3050*(1.38-1.46)                       =         244.00 F Direct Material Qty Variance = Std rate( Actual qty -Std qty for actual output)                      =1.46*(3050-3000)                 =           73.00 U Direct labor variance= Actual hrs( Actual rate-std rate)                    =1600*(23-24)                    =     1,600.00 F Direct labor qty variance = Std rate (actual Hrs-std hrs for actual output)                   =24*(1600-1500)                 =           2,400 U Variable OH variance =Actual var OH- Std var OH for Actual output =7400-9000        =     1,600.00 F Fixed OH Variance =Actual Fixed OH- Std Fixed OH for Actual output =15000-15000            =                  -   Total OH variance =                  1,600.00 F

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