Reference no: EM131966077
Key concept: Preparing a flexible budget and computing variances Rapid Lab is an independent lab that provides online results for two types of expensive DNA analyses-Test A and Test B-within two hours of receipt of the materials to be analyzed. During December 2015, Candice Brennan, Rapid Lab's manager, was busy preparing a January 2016 overhead budget for the lab.
Historical performance standards suggested that Test A should require 10 minutes of supervisory time and Test B should require 30 minutes of supervisory time.
Supervisory costs are projected at $40 per hour, including fringe benefits. Test A's machine and supplies costs are $2 per test. Test B's machine and supplies costs are $8 per test. Monthly fixed costs for Rapid Lab are estimated to be $5,000.
Candice used these data to prepare the following monthly budget for January:
TEST A TEST B TOTAL
TEST QUANTITY 2,000 1,000 3,000
SUPERVISORY COST $13,333 $20,000 $33,333
MACHINE AND SUPPLY COSTS $4,000 $8,000 $12,000
TOTAL VARIABLE COSTS $17,333 28,000 $45,333
FIXED COSTS $5,000
TOTAL BUDGET $50,333
STANDARD VARIABLE OVERHEAD RATE $15.11
During the month of January, a total of 2,300 Test A analyses and 900 Test B analyses were performed, and 55,000 minutes of supervisory time were incurred.
Machine and supplies costs averaged $2 for Test A and $8 for Test B.
Actual total overhead costs for January were $51,000, which consisted of $5,100 of fixed costs and $45,900 of variable costs.
Assignments
Prepare a flexible budget for Rapid Lab.