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

P11.5

Hart Labs, Inc. provides mad cow disease testing for both state and federal government agricultural agencies. Because the company’s customers are governmental agencies, prices are strictly regulated. Therefore, Hart Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical test.

Monthly budgeted fixed overhead is $14,000. Revenues for the month were $75,000, and selling and administrative expenses were $5,000.

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.

Transcribed Image Text:

Direct materials (2 test tubes @ $1.46 per tube) Direct labor (1 hour @ $24 per hour) Variable overhead (1 hour @ $6 per hour) Fixed overhead (1 hour @ $10 per hour) Total standard cost per test $ 2.92 24.00 6.00 10.00 $42.92