10.00 $43.50 The lab does not maintain an inventory of test tubes. Therefore, th

Question

10.00

$43.50

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 2012, when 1,510 tests were conducted, resulted in the following:

Monthly budgeted fixed overhead is $14,000. Revenues for the month were $76,750, and selling and administrative expenses were $4,360.
   

Compute the price and quantity variances for direct materials and direct labor, and the controllable and volume variances for overhead.

  Prepare an income statement for management.

Agri 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, Agri Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical test. Direct materials (3 test tubes @ $1.50 per tube) $4.50 Direct labor (1 hour @ $24.00 per hour) 24.00 Variable overhead (1 hour @ $5.00 per hour) 5.00 Fixed overhead (1 hour @ $10.00per hour)

10.00

     Total standard cost per test

$43.50

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 2012, when 1,510 tests were conducted, resulted in the following:

Direct materials (4,580 test tubes) $ 6,412 Direct labor (1,610 hours) 35,420 Variable overhead 7,370 Fixed overhead 14,000

Monthly budgeted fixed overhead is $14,000. Revenues for the month were $76,750, and selling and administrative expenses were $4,360.
   

Explanation / Answer

Solution:

The question provides that Actual Quantity of material purchased each month are used that month.

Hence, Actual Quantity Purchased = Actual Quantity Used

Material Price Variance = Actual Quantity Purchased (Standard Price – Actual Price)

Or (Actual Quantity) x Standard Price – (Actual Quantity x Actual Price)

= (4,580 x $1.50) - $6,412

= $6,870 - $6,412

= $458 Favorable

Standard Quantity for actual output = Actual Output x Standard Quantity needed per output = 1,510 x 3 test tubes = 4,530 test tubes

Material Quantity Variance = Standard Price (Standard Quantity for actual output – Actual Quantity Used)

= $1.50 (4,530 – 4,580)

= $75 Unfavorable

Labor Rate Variance = Actual Hours (Standard Rate per hour – Actual Rate Per Hour)

Or (Actual Hours x Standard Rate per hour) – (Actual Hours x Actual Rate Per Hour)

= (1,610 x $24) - $35,420

= $38,640 - $35,420

= $3,220 favorable

Standard Quantity for actual output = Actual Output x Standard Hours needed per output = 1,510 x 1 hour = 1,510 Hours

Labor Efficiency Variance = Standard Rate per hour (Standard Hours for actual output – Actual Hours)

= $24 (1,510 – 1,610)

= $24 x 100

= $2,400 Unfavorable

Please ask separate question for rest requirements..

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