Pace Labs, Inc. provides mad cow disease testing for both state and federal gove
ID: 2588105 • Letter: P
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 a $1.00 per tube) Direct labor (1 hour @ $32 per hour) Variable overhead (1 hour @ $6 per hour) Fixed overhead (1 hour @ $13 per hour) $ 2.00 32.00 13 Total standard cost per test $53.00 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 1,500 tests were conducted, resulted in the following: s2,652 47.250 8,790 18,375 Direct materials (3,120 test tubes) Direct labor (1,575 hours) Fixed overhead Monthly budgeted fixed overhead is $18,850. Revenues for the month were $102,000, and selling and administrative expenses were $3,620 1) Compute the price and quantity variances for direct materials and direct labor 2) Compute the total overhead variance 3) Prepare an income statement for management (Cro-Explanation / Answer
1. material price variance = (standard price - actual price ) actual quantity
= (1 - (2656/3120) )* 3120
= 468 fav.
,material quantity varince = (standard quantity - actual quantity) standard rate
= ( 1500*2 - 3120) 1
= 120 unfav.
labour rate variance = (standard rate - actual rate) actual hours
= (32 - (47250/1575) ) 1575
= (32-30) 1575
= 3150 fav.
labour usage varince = (standard hours - actual hours) standard rate
= (1500*1 - 1575) 32
= 2400 unfav.
2) total overhead variance = absorbed total overhead cost - actual overhead cost
= (6+13)*1500 - (8790+18375)
= 28500 - 27165
= 1335 fav.
3. income statement
revenue from sales 102000 expenses: direct material 2652 direct labour 47250 variable overhead 8790 selling and administrative expense 3620 fixed overhead 18375 80687 net income $ 21313Related Questions
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