Question - Under a contract with the provincial government, ChemLabs Inc analyzes the chemical and bacterial composition of well water in various municipalities in the interior of British Columbia. The contract price is $25.20 per test performed. The normal volume is 10,000 tests per month. Each test requires two testing kits, which have a standard price of $3.80 each. Direct labour to perform the test is 10 minutes at $22.80 per hour. At normal volume, the overhead costs are as follows:
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Total
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Variable overhead costs
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Indirect labour
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$18,000
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Utilities
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4,000
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Labour-related costs
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15,000
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Laboratory maintenance
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11,000
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$ 48,000
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Fixed overhead costs
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Depredation
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28,000
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Supervisor
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30,000
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Base utilities
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9,000
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Insurance
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2,000
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69,000
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Total overhead
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$117,000
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Overhead is allocated based on direct labour hours.
During May 2016, 9,000 tests were performed. The records show the following actual costs and production data:
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Activity
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Actual Cost
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Number of test kits purchased
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19,000
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$70,300
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Number of test kits used
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18,500
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Direct labour
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1,623 hours
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37,646
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Total overhead costs
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Variable
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45,200
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Fixed
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68,500
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Test kits are kept in inventory at standard cost. At the end of May, no tests were in process.
Prepare a flexible overhead budget at 80% of the normal volume. Use $ and commas. Use two decimal places for unit costs and no decimals for total costs. Include a 0 in the dollars place if the unit cost is less than $1.00 - e.g., $0.55.
Prepare a standard cost card for materials and labour. Use two decimal places, $ were appropriate, and a fraction (e.g. 118) for the standard quantity of labour.
Calculate the direct materials price and quantity variances and the direct labour rate and efficiency variances for May. Indicate whether they are favourable or unfavourable. Use $, commas, no decimal places. Enter U or F for unfavourable or favourable. The first space is for the dollar amount of the variance. The second space is to indicate favourable or unfavourable.
Direct materials price variance:
Direct materials quantity variance:
Direct labour rate variance:
Direct labour efficiency variance: