Using the information in P11-5B, compute the overhead controllable variance and the overhead volume variance. Data From

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Using the information in P11-5B, compute the overhead controllable variance and the overhead volume variance.

Data From Problem 11-5B:

Bonita 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 petri dish @ $1.80 per dish)                     $ 1.80
Direct labor (0.5 hours @ $20.50 per hour)                             10.25
Variable overhead (0.5 hours @ $8 per hour)                            4.00
Fixed overhead (0.5 hours @ $5 per hour)                                2.50
    Total standard cost per test                                                 $18.55

The lab does not maintain an inventory of petri dishes. Therefore, the dishes purchased each month are used that month. Actual activity for the month of May 2014, when 2,500 tests were conducted, resulted in the following.

Direct materials (2,530 dishes)                                             $ 5,060
Direct labor (1,240 hours)                                                     26,040
Variable overhead                                                                  10,100
Fixed overhead                                                                        5,700

   Monthly budgeted fixed overhead is $6,000. Revenues for the month were $55,000, and selling and administrative expenses were $2,000.
Instructions
  (a) Compute the price and quantity variances for direct materials and direct labor.
  (b) Compute the total overhead variance.
  (c) Prepare an income statement for management.
  (d) Provide possible explanations for each unfavorable variance.

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Related Book For  book-img-for-question

Managerial Accounting Tools for business decision making

ISBN: 978-1118096895

6th Edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

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