Question

Question 8 Soren Health Corporation provides Covid testing for medical professional. Shown below are the standard costs for a Covid test:

Direct materials (2 test tubes @ $1.30 per tube) $2.60

Direct labor (1 hour @ $24 per hour) 24.00

Variable overhead (1 hour @ $6.00 per hour) 6.00

Fixed overhead (1 hour @ $10.00 per hour) 10.00

Total standard cost per test $42.60

Actual activity for the month of November 2020, when 1,290 tests were conducted, resulted in the following:

Direct materials (2,690 test tubes) $3,228

Direct labor (1,366 hours) 31,418

Variable overhead 6,360

Fixed overhead 13,150

a) Calculate the total direct labor variance
b) Calculate the direct labor price variance
c) Calculate the direct labor quantity variance
d) Discuss possible reasons (2 for each) why the price variance and quantity variances may have occurred

Answer 1

WORKING NOTES:
									Actual Cost for 1,290 Tests
	Standard Cost Per unit		Standard Cost for Actual Production
	Standard Time	Std. Rate	Total Cost		Standard Time	Std. Rate	Total Std. Cost		Actual Time	Act. Rate	Actual Cost
	1	$             24.00	$                           24		1290	$     24.00	$                   30,960		1366	$      23.00	$                   31,418
	Hrs	Per Hours			Hrs (1,190 X 1Hr)	Per Hours			Hrs	Per Hours
SOLUTION : A
	Labour Total Direct Labor Variance = Standard Cost of Labour " -"   Actual Cost of Labour
	Labour Cost Variance =	$             30,960.00	'-'	$             31,418.00
	Labour Cost Variance =	$                   458.00	(Unfavorable)
SOLUTION : B
	Labour Price Variance =                        (Actual Rate            -            Standard Rate      ) X                     Actual Hours
	Labour Price Variance =                        (Actual Rate            -            Standard Rate      ) X                     Actual Hours	$                     23.00	'-'	$                      24.00	) X	1,366
	Labour Price Variance =                        (Actual Rate            -            Standard Rate      ) X                     Actual Hours	$                        1.00	X	1,366
	Labour Price Variance =                        (Actual Rate            -            Standard Rate      ) X                     Actual Hours	1366	(favorable)
SOLUTION : C
	Labour Efficiency Variance =                (Actual Hours       '-'        Standard Hours     )X                 Standard Rate
	Labour Efficiency Variance = (	1,366.00	'-'	1,290.00	) X	$                     24.00
	Labour Efficiency Variance =	$                     76.00	X	$                      24.00
	Labour Efficiency Variance =	1824	(Unfavorable)
Solution: D
	Price Variances :
	1) Price Variances is due actual rate and standard rate is different
	2) Actual hours used is difference as per budgeted hours so this is also one rason for variances
	Quantity Variances:
	1) Actual hours used is difference as per budgeted hours so there is variances
	2) Standard rate and actual rate is also different