Hi-Tek Labs performs steroid testing services to high schools, colleges, and universi
Hi-Tek Labs performs steroid testing services to high schools, colleges, and universities.
Because the company deals solely with educational institutions, the price of
each test is strictly regulated. Therefore, the costs incurred must be carefully monitored
and controlled. Shown below are the standard costs for a typical test.
Direct materials (1 petrie dish @ $2 per dish) $ 2.00
Direct labor (0.5 hours @ $20 per hour) 10.00
Variable overhead (0.5 hours @ $8 per hour) 4.00
Fixed overhead (0.5 hours @ $3 per hour) 1.50
Total standard cost per test $17.50
The lab does not maintain an inventory of petrie dishes. Therefore, the dishes purchased
each month are used that month. Actual activity for the month of May 2005, when
2,000 tests were conducted, resulted in the following.
Direct materials (2,020 dishes) $ 4,242
Direct labor (995 hours) 20,895
Variable overhead 8,100
Fixed overhead 3,400
Monthly budgeted fixed overhead is $3,600. Revenues for the month were $45,000,
and selling and administrative expenses were $2,000.
Instructions
(a) Compute the price and quantity variances for direct materials and direct labor, and
for overhead the controllable and volume variances.
(b) Prepare an income statement for management.
(c) Provide possible explanations for each unfavorable variance.
