Farm Labs, Inc. provides mad cow disease testing for both provincial and federal government agriculture agencies. Because the company's customers are government agencies, prices are strictly regulated. Farm Labs must therefore constantly monitor and control its testing costs. Shown below are the standard costs for a typical test

Direct materials (2 test tubes at $1.46 per tube)...................$2.92

Direct labour (1 hour at $24 per hour) ..............................24.00

Variable overhead (1 hour at $6 per hour) ...........................6.00

Fixed overhead (1 hour at $10 per hour) ...........................10.00

Total standard cost per test..........................................$42.92

The lab does not maintain an inventory of test tubes. The tubes purchased each month are used that month. Actual activity for the month of November 2016, when 1,475 tests were conducted, resulted in the following:

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

Direct labour (1,500 hours)............................35,650

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.

Instructions

(a) Calculate the price and quantity variances for direct materials and direct labour, and the budget and volume variances for overhead.

(b) Prepare an income statement for management.

(c) Provide possible explanations for each unfavourable variance