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Pace Labs Inc

Price: $2.50

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.

(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.

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