Accounting

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

Direct materials (2 test tubes @ $1.90 per tube)		$3.80
Direct labor (1 hour @ $30 per hour)		30.00
Variable overhead (1 hour @ $7.00 per hour)		7.00
Fixed overhead (1 hour @ $12.00 per hour)		12.00
Total standard cost per test		$52.80

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 2022, when 1,100 tests were conducted, resulted in the following.

Direct materials (2,310 test tubes)		$4,158
Direct labor (1,155 hours)		33,495
Variable overhead		7,106
Fixed overhead		13,101

Monthly budgeted fixed overhead is $17,400. Revenues for the month were $73,700, and selling and administrative expenses were $4,500.

(a)

Compute the price and quantity variances for direct materials and direct labor.

Materials price variance		$enter a dollar amount		select an option
Materials quantity variance		$enter a dollar amount		select an option
Labor price variance		$enter a dollar amount		select an option
Labor quantity variance		$enter a dollar amount		select an option

12 Wildhorse Service Center just purchased an automobile hoist for $37,300. The hoist has an 8-year life and an estimated salvage value of $3,600. Installation costs and freight charges were $3,400 and $900, respectively. Wildhorse uses straight-line depreciation.
The new hoist will be used to replace mufflers and tires on automobiles. Wildhorse estimates that the new hoist will enable its mechanics to replace 5 extra mufflers per week. Each muffler sells for $73 installed. The cost of a muffler is $39, and the labor cost to install a muffler is $14.
(a)
Compute the cash payback period for the new hoist.

Cash payback period

enter the cash payback period in years

years

(b)
Compute the annual rate of return for the new hoist. (Round answer to 2 decimal places, e.g. 10.52%.)

Annual rate of return

enter the annual rate of return in percentages rounded to 2 decimal places %

Solution: