Key concept: Preparing a flexible budget and computing variances Rapid Lab is an independent lab that provides online results for two types of expensive DNA analysesTest A and Test Bwithin two hours of receipt of the materials to be analyzed. During December 2015, Candice Brennan, Rapid Labs manager, was busy preparing a January 2016 overhead budget for the lab. Historical performance standards suggested that Test A should require 10 minutes of supervisory time and Test B should require 30 minutes of supervisory time. Supervisory costs are projected at $40 per hour, including fringe benefits. Test As machine and supplies costs are $2 per test. Test Bs machine and supplies costs are $8 per test. Monthly fixed costs for Rapid Lab are estimated to be $5,000.

Candice used these data to prepare the following monthly budget for January:

TEST A TEST B TOTAL

TEST QUANTITY 2,000 1,000 3,000

SUPERVISORY COST $13,333 $20,000 $33,333

MACHINE AND SUPPLY COSTS $4,000 $8,000 $12,000

TOTAL VARIABLE COSTS $17,333 $28,000 $45,333

FIXED COSTS $5,000

TOTAL BUDGET $50,333

STANDARD VARIABLE OVERHEAD RATE $15.11

During the month of January, a total of 2,300 Test A analyses and 900 Test B analyses were performed, and 55,000 minutes of supervisory time were incurred.

Machine and supplies costs averaged $2 for Test A and $8 for Test B.

Actual total overhead costs for January were $51,000, which consisted of $5,100 of fixed costs and $45,900 of variable costs.

Assignments

1. Prepare a flexible budget for Rapid Lab.