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 @ $1.60 per tube)		$3.20
Direct labor (1 hour @ $32 per hour)		32.00
Variable overhead (1 hour @ $7.00 per hour)		7.00
Fixed overhead (1 hour @ $12.00 per hour)		12.00
Total standard cost per test		$54.20

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)		$3,150
Direct labor (1,040 hours)		32,240
Variable overhead		6,460
Fixed overhead		11,560

Monthly budgeted fixed overhead is $17,040. Revenues for the month were $67,000, and selling and administrative expenses were $4,700.

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

Materials price variance		$		UnfavorableNeither favorable nor unfavorableFavorable
Materials quantity variance		$		FavorableNeither favorable nor unfavorableUnfavorable
Labor price variance		$		UnfavorableFavorableNeither favorable nor unfavorable
Labor quantity variance		$		UnfavorableNeither favorable nor unfavorableFavorable

Answer 1

Solution

Total Material Variance	$                 50.00	Favourable-F
Material quantity variance	$               160.00	Unfavourable-U
Material Price Variance	$               210.00	Favourable-F
Labor quantity variance	$           1,280.00	Unfavourable-U

Working

Actual DATA for		1000	Units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	2100	$            1.50	$            3,150.00
Direct labor	1040	$         31.00	$          32,240.00

.

Standard DATA for		1000	Units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 2 test tubes x 1000 Units)=2000 test tubes	$                   1.60	$               3,200.00
Direct labor	( 1 Hour x 1000 Units)=1000 Hour	$                32.00	$            32,000.00

.

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    1.60	-	$                        1.50	)	x	2100
	210
	Variance		$                   210.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	2000	-	2100	)	x	$              1.60
	-160
	Variance		$                   160.00			Unfavourable-U
Material Spending Variance
(	Standard Cost	-	Actual Cost	)
(	$            3,200.00	-	$                3,150.00	)
	50
	Variance		$                      50.00			Favourable-F
Labour Quantity Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	1000	-	1040	)	x	$           32.00
	-1280
	Variance		$                1,280.00			Unfavourable-U