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

Question

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. Direct materials (2 test tubes @ $1.90 per tube) $3.80 Direct labor (1 hour @ $30 per hour) 30.00 Variable overhead (1 hour @ $6.00 per hour) 6.00 Fixed overhead (1 hour @ $12.00 per hour) 12.00 Total standard cost per test $51.80 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 1,100 tests were conducted, resulted in the following: Direct materials (2,244 test tubes) $3,837 Direct labor (1,133 hours) 32,857 Variable overhead 6,336 Fixed overhead 12,672 Monthly budgeted fixed overhead is $16,560. Revenues for the month were $73,700, and selling and administrative expenses were $4,900.

a) Compute the price and quantity variances for direct materials and direct labor. (Round answers to 0 decimal places, e.g. 5,275.)

Materials price variance $

Materials quantity variance $

Labor price variance $

Labor quantity variance $

b) Compute the total overhead variance.

Total Overhead variance $

c) Prepare an income statement for management. HART LABS, INC.

Explanation / Answer

A)1. Material Price Variance :-

= (Actual Quantity*Actual Price) - (Actual Quantity * Standard Price)

= $3837 - (2244*$1.9)

= $427 F

2). Material Quantity Variance :-

= (Actual Quantity * Standard Price) - (Standard Quantity * Standard Price)

= (2244*$1.90) - (1100*2*$1.90)

= $4263.6 - $4180

= $84 U

3). Labor Price Variance :-

= (Actual Rate * actual hours worked) - (Standard Rate * Actual Hours Worked)

= $32857 - ($30 * 1133)

= $32857 - $33990

= 1133 F

4). Labor Quantity Variance :-

= Standard rate - (actual hours - Standard hours)

= $30 * (1133 - 1100)

= $990 U

b). Total Overhead Variance = Actual Overhead - Standard overhead for actual hours

= ($6336 + $12672) - (1133*($6+$12))

= $19008 - $20394

= $1386 F

c) Income Statement :-

Particulars Amount ($) Revenue 73700 Less : Variable Cost($3887+$32857+$6336) (43080) Contribution 30620 Less : Fixed Expense ($12672+$4900) (17572) Net Income $13048

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