Farm Labs, Inc. provides mad cow disease testing for both provincial and federal government agriculture agencies. Because the company's customers are government agencies, prices are strictly regulated. Farm Labs must therefore constantly monitor and control its testing costs. Shown below are the standard costs for a typical test:

Direct materials (3 test tubes at $1.50 per tube).................................................$ 4.50

Direct labour (2 hours at $25 per hour).............................................................50.00

Variable overhead (2 hours at $5 per hour) ........................................................10.00

Fixed overhead (2 hours at $10 per hour) ...........................................................20.00

Total standard cost per test.........................................................................$84.50

The lab does not maintain an inventory of test tubes. The tubes purchased each month are used that month. Actual activity for the month of November 2012, when 1,500 tests were conducted, resulted in the following:

Direct materials (4,500 test tubes).............................................................$ 7,875

Direct labour (3,200 hours) .....................................................................64,000

Variable overhead.................................................................................19,200

Fixed overhead....................................................................................28,000

Monthly budgeted fixed overhead is $28,000. Revenues for the month were $150,000, and selling and administrative expenses were $10,000.

Instructions

(a) Calculate the price and quantity variances for direct materials and direct labour, and the budget and volume variances for overhead.

(b) Prepare an income statement for management.

(c) Provide possible explanations for each unfavourable variance.