farm labs inc provides mad cow disease testing for both state and federal government 491691

Farm 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, Farm Labs must constantly monitor and control its testing costs. Shown below are the standard costs for a typical test.

Direct materials (2 test tubes @ 1.50 per tube) 3.00

Direct labor (1 hour @ 25.00 per hour) 25.00

Variable overhead (1 hour @ 5.00 per hour) 5.00

Fixed overhead (1 hour @ 10.00 per hour) 10.00

Total standard cost per test 43.00

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 2010, when 1,500

tests were conducted, resulted in the following:

Direct materials (3,050 test tubes) 4,270

Direct labor (1,600 hours) 36,800

Variable overhead 7,400

Fixed overhead 14,000

Monthly budgeted fixed overhead is $14,000. Revenues for the month were $75,000, and

selling and administrative expenses were $4,000.

Compute the overhead controllable variance and the overhead volume variance.