Hi-Tek Labs performs steroid testing services to high schools colleges and universities.
Because the company deals solely with educational institutions the price of
Each test is strictly regulated. Therefore the costs incurred must be carefully monitored
And controlled. Shown below are the standard costs for a typical test.
Direct materials (1 petrie dish @ $2 per dish) $ 2.00
Direct labor (0.5 hours @ $20 per hour) 10.00
Variable overhead (0.5 hours @ $8 per hour) 4.00
Fixed overhead (0.5 hours @ $3 per hour) 1.50
Total standard cost per test $17.50
The lab does not maintain an inventory of petrie dishes. Therefore the dishes purchased
Each month are used that month. Actual activity for the month of May 2010 when
2000 tests were conducted resulted in the following.
Direct materials (2020 dishes) $ 4242
Direct labor (995 hours) 20895
Variable overhead 8100
Fixed overhead 3400
Monthly budgeted fixed overhead is $3600.
(a) Compute the price and quantity variances for direct materials and direct labor.
(b)compute the controllable and volume variances for overhead.
(c) Provide possible explanations for each unfavorable variance.