help in homework

New User?

Fill This Form To Receive Instant Help

Help in Homework
trustpilot ratings
google ratings


Homework answers / question archive / Pace Labs, Inc

Pace Labs, Inc

Accounting

Pace Labs, Inc. provides mad cow disease testing for both state and federal governmental agricultural agencies. Because the company’s customers are governmental agencies, prices are strictly regulated. Therefore, Pace Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical test.
Direct materials (2 test tubes @ $1.46 per tube) .....$ 2.92
Direct labor (1 hour @ $24 per hour) ...........24.00
Variable overhead (1 hour @ $6 per hour) ...........6.00
Fixed overhead (1 hour @ $10 per hour) ........10.00
Total standard cost per test .............$42.92
The lab does not maintain an inventory of test tubes. Therefore, the tubes purchased each month are used that month. Actual activity for the month of November 2014, when 1,500 tests were conducted, resulted in the following.
Direct materials (3,050 test tubes) ......$ 4,209
Direct labor (1,600 hours) ...........36,800
Variable overhead .............7,400
Fixed overhead ...............15,000
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.

pur-new-sol

Purchase A New Answer

Custom new solution created by our subject matter experts

GET A QUOTE

Answer Preview

(a)      Materials price variance:

 

( AQ  X  AP )

(3,050 X $1.38*)
$4,209

–

 

–

( AQ  X  SP )

(3,050 X $1.46)
$4,453

 

 

=

 

 

$244 F 

*$4,209 ÷ 3,050

          Materials quantity variance:

 

(  AQ  X  SP )

(3,050 X $1.46)
$4,453

–

 

–

(  SQ  X  SP )

(3,000* X $1.46)
$4,380

 

 

=

 

 

$73 U 

*1,500 X 2

          Labor price variance:

 

( AH  X AR)

(1,600 X $23*)
$36,800

–

 

–

( AH  X  SR)

(1,600 X $24)
$38,400

 

 

=

 

 

$1,600 F 

          *$36,800 ÷ 1,600

          Labor quantity variance:

 

( AH  X SR)

(1,600 X $24)
$38,400

–

 

–

(SH   X  SR )

(1,500* X $24)
$36,000

 

 

=

 

 

$2,400 U 

*1,500 X 1 hr.

(b)      Total Overhead variance:

 

Actual

Overhead

$22,400

($7,400 + $15,000)

 

–

–

Overhead
Applied
$24,000
(1,500 X $16*)

 

 

=

 

 

$1,600 F 

 

          *$10 + $6

 

 

(c)

PACE LABS, INC.

Income Statement

For the Month Ended November 30, 2014

 

 

Service revenue..................................................................................                                    $75,000

Cost of service provided (at standard)

    (1,500 X $42.92)............................................................................                                      64,380

Gross profit (at standard)..................................................................                                     10,620

Variances

                    Materials price..........................................................................           $   244   F

                    Materials quantity....................................................................                 73  U

                    Labor price...............................................................................             1,600   F

                    Labor quantity.........................................................................             2,400  U

                    Overhead.................................................................................            1,600   F

                               Total variance x favorable.............................................                                           971 

Gross profit (actual)...........................................................................                                      11,591

Selling and administrative expenses..................................................                                        5,000

Net income.........................................................................................                                    $ 6,591

 

(d)     The unfavorable materials quantity variance could be caused by poor quality materials or inexperienced workers or faulty test procedures.

 

          The unfavorable labor quantity variance could be caused by inexperienced workers, poor quality materials, or faulty test procedures.

please see the attached file for the complete solution.

Download Attached File

Sitejabber (5.0)

BBC (5.0)

Trustpilot (4.9)

Google (5.0)

Related Questions