Omega Labs carries out Covid-19 related and other blood tests for local hospitals and clinics. The standard
Question:
Omega Labs carries out Covid-19 related and other blood tests for local hospitals and clinics. The standard cost card for each test is given below:
£ | |
Chemicals used in test: 10 millilitres at £0.50 per ml | 5.00 |
Laboratory worker: 15 minutes at £16 per hour | 4.00 |
Fixed overhead of the testing centre | 2.00 |
Total cost | 11.00 |
Charge for each test | 15.00 |
Standard profit per test | 4.00 |
The centre has fixed overheads of £72,000 per year and plans to carry out 36,000 tests every year at the rate of 3,000 tests per month.
In May 2021, the following results were recorded:
Number of tests carried out | 3,600 |
£ | |
Chemicals used in tests: 33,750 millilitres at £0.48 per ml | 16,200 |
Laboratory workers: 925 hours at £16.20 per hour | 14, 985 |
Fixed overhead of the testing centre | 7,500 |
Total cost | 38, 685 |
Charge for each test 3,600 at £15.50 | 55,800 |
Profit for May | 17, 115 |
Required (show your workings for calculations & write in your own words):
(a) For direct materials, calculate the price variance, efficiency variance, and flexible budget variance (1.5 points).
(b) For direct labour, calculate the price variance, efficiency variance, and flexible budget variance (1.5 points).
(c) Explain fully one possible cause for the following variances you calculated above (4 points):
(i) Direct materials price variance
(ii) Direct materials efficiency variance
(iii) Direct labour price variance
(iv) Direct labour efficiency variance
(d) "Variances are a waste of time to calculate!" Do you agree? Explain. (3 points)
Managerial Accounting
ISBN: 978-0697789938
13th Edition
Authors: Ray H. Garrison, Eric W. Noreen, Peter C. Brewer