Aspen Medical Laboratory performs comprehensive blood tests for physicians and clinics throughout the Southwest. Aspen uses a standard process-costing system for its comprehensive blood work. Skilled technicians perform the blood tests. Because Aspen uses a standard costing system, equivalent units are calculated using the FIFO method. The standard cost sheet for the blood test follows (these standards were used throughout the calendar year):
Direct materials (4 oz. @ $4.50)......$18
Direct labor (2 hrs. @ $18.00).........36
Variable overhead (2 hrs. @ $5.00)......10
Fixed overhead (2 hrs. @ $10.00).....20
Standard cost per test...........$84
For the month of November, Aspen reported the following actual results:
a. Beginning work in process: 1,250 tests, 60 percent complete
b. Tests started: 25,000
c. Ending work in process: 2,500 tests, 40 percent complete
d. Direct labor: 47,000 hours at $19 per hour
e. Direct materials purchased and used: 102,000 at $4.25 per ounce
f. Variable overhead: $144,000
g. Fixed overhead: $300,000
h. Direct materials are added at the beginning of the process.
Required:
1. Explain why the FIFO method is used for process costing when a standard costing system has been adopted.
2. Calculate the cost of goods transferred out (tests completed and transferred out) for the month of November. Does standard costing simplify process costing? Explain.
3. Calculate price and quantity variances for direct materials and direct labor.