Question - Hart 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, Hart Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical test.
Direct materials (2 test tubes @ $1.60 per tube)$3.20Direct labor (1 hour @ $32 per hour)32.00Variable overhead (1 hour @ $7.00 per hour)7.00Fixed overhead (1 hour @ $12.00 per hour)12.00 Total standard cost per test$54.20
The lab does not maintain an inventory of test tubes. As a result, the tubes purchased each month are used that month. Actual activity for the month of November 2017, when 1,000 tests were conducted, resulted in the following:
Direct materials (2,020 test tubes)$2,929Direct labor (1,040 hours)32,240Variable overhead6,460Fixed overhead11,560
Monthly budgeted fixed overhead is $17,040. Revenues for the month were $67,000, and selling and administrative expenses were $4,700.
Compute the price and quantity variances for direct materials and direct labor.
Prepare an income statement for management.