Question

Boss 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, Boss Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical test. Direct materials (2 test tubes @ $1.70 per tube) $3.40 Direct labor (1 hour @ $32 per hour) 32.00 Variable overhead (1 hour @ $7.00 per hour) 7.00 Fixed overhead (1 hour @ $13.00 per hour) 13.00     Total standard cost per test $55.40 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 1,300 tests were conducted, resulted in the following. Direct materials (2,730 test tubes) $4,368 Direct labor (1,339 hours) 41,509 Variable overhead 8,580 Fixed overhead 16,211 Monthly budgeted fixed overhead is $18,460. Revenues for the month were $84,500, and selling and administrative expenses were $3,600.

a) Compute the price and quantity variances for direct materials and direct labor.

Materials price variance $______    Favorable or Unfavorable

Material Quantity variance $_______   Favorable or Unfavorable

Labor price variance $________   Favorable or Unfavorable

Labor quantity variance $_______ Favorable or Unfavorable

b) Compute the total overhead variance.

Total Overhead variance $______ Favorable or Unfavorable

c) Prepare an income statement for management.

                            Boss Labs, Inc.

                          Income Statement

Thank you so much

Answer 1

>> Total Overhead variance = Standard cost - Actual cost

>> Total Overhead variance = ( 1300 * 1 * ( $ 13 + $ 7 ) ) - ( $ 8580 + $ 16,211 )

>> Total Overhead variance = $ 1,209 Favorable.