Direct materials (4 oz. @ $4.50) $18 Direct labor (2 hrs. @ $18.00) 36 Variable overhead (2 hrs. @ $5.00) 10 Fixed overhead (2 hrs. @ $10.00) 20 Standard cost per test $84 For the month of November, Kolite reported the following actual results: Beginning work in process: 1,250 tests, 60 percent complete Tests started: 25,000 Ending work in process: 2,500 tests, 40 percent complete Direct labor: 47,000 hours at $19 per hour Direct materials purchased and used: 102,000 at $4.25 per ounce Variable overhead: $144,000 Fixed overhead: $300,000 Direct materials are added at the beginning of the process.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Kolite Medical Laboratory performs comprehensive blood tests for physicians and clinics throughout the Southwest. Kolite uses a standard process-costing system for its comprehensive blood work. Skilled technicians perform blood tests. Because Kolite uses a standard costing system, equivalent units are calculated using the FIFO method. The standard cost sheet for the blood test follows (these standards were used throughout the calendar year):
| Direct materials (4 oz. @ $4.50) | $18 |
| Direct labor (2 hrs. @ $18.00) | 36 |
| Variable |
10 |
| Fixed overhead (2 hrs. @ $10.00) | 20 |
| Standard cost per test | $84 |
For the month of November, Kolite reported the following actual results:
- Beginning work in process: 1,250 tests, 60 percent complete
- Tests started: 25,000
- Ending work in process: 2,500 tests, 40 percent complete
- Direct labor: 47,000 hours at $19 per hour
- Direct materials purchased and used: 102,000 at $4.25 per ounce
- Variable overhead: $144,000
- Fixed overhead: $300,000
- Direct materials are added at the beginning of the process.
Required:
1. Calculate the cost of goods transferred out (tests completed and transferred out) for the month of November.
?
Does standard costing simplify
Yes
2. Calculate price and quantity variances for direct materials and direct labor.
| MPV | $25,500 |
Favorable |
| MUV | ? |
Unfavorable |
| LRV | ? |
Unfavorable |
| LEV | ? |
Favorable |
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