Question

Problem 24-05A a-c 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 @ $1.60 per tube) Direct labor (1 hour $31 per hour) Variable overhead (1 hour $6.00 per hour) Fixed overhead (1 hour $12.00 per hour) Total standard cost per test $3.20 31.00 6.00 12.00 $52.20 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 2020, when 1,000 tests were conducted, resulted in the following. Direct materials (2,100 test tubes) Direct labor (1,050 hours) Variable overhead Fixed overhead $3,150 31,500 5,760 11,420 Monthly budgeted fixed overhead is $18,000. Revenues for the month were $68,000, and selling and administrative expenses were $4,900. Compute the price and quantity variances for direct materials and direct labor. Materials price variance Materials quantity variance Labor price variance Labor quantity variance SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO VIDEO Compute the total overhead variance. Total Overhead variances

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Answers are highlighted in yellow: Solution: Materials price variance: Standard Price (SP) Actual Price (AP) (3150/2100) $ $ 1.60 1.50 Labor price variance: Standard Rate (SR) Actual rate (AR) (31500/1050) $31.00 $ 30.00 Actual Quantity (AQ) Materials price variance (SP-AP)*Actual Qty. 2100 210 Favorable Actual Hours (AH) Labor price variance (SR - AR)*Actual Hours. 1050 $ 1,050 Favorable $ Materials quantity/efficiency variance: Standard Quantity (SQ) (1000*2) Actual Quantity (AQ) 2000 21001 Labor quantity/efficiency variance: Standard Hours (SH) (1000*1) Actual Hours (AH) 1000 1050 Standard Price (SP) Materials quantity variance (SQ-AQ)*Standard Price $ $ 1.60 160 Unfavorable Standard Rate (SR) Labor efficiency variance (SH-AH)*Standard Rate $ 31.00 $ 1,550 Unfavorable 1) Material Price Variance 2) Material quantity Variance $ $ 210 Favorable 160 Unfavorable 3) 4) Labor price variance Labor Quantity variance $ $ 1,050 Favorable 1,550 Unfavorable 5) (5760+11420) - (1000*18) = $820 Total overhead variance = (Actual overhead cost) - (Standard overhead Applied) Total overhead variance = $ 820 Favorable

Income Statement (1000*52.20) 68000 52200 15800 Service Revenue Cost of Service provided (at standard) Gross profit (at standard) Variances: Material price Material Quantity Labor price Labor quantity Overhead Total Variance Gross profit (actual) Selling and admin. Expense Net Income/-Loss 210 Favorable 160 Unfavorable 1,050 Favorable 1,550 Unfavorable 820 Favorable Favorable $ $ $ $ 370 16,170 4,900 11,270