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Omega Labs carries out Covid-19 related and other blood tests for local hospitals and clinics. The standard cost card for each test is given below:

Omega Labs carries out Covid-19 related and other blood tests for local hospitals and clinics. The standard cost card for each test is given below:

 

 £
Chemicals used in test: 10 millilitres at £0.50 per ml5.00
Laboratory worker: 15 minutes at £16 per hour4.00
Fixed overhead of the testing centre2.00
Total cost11.00
Charge for each test15.00
Standard profit per test4.00

 

The centre has fixed overheads of £72,000 per year and plans to carry out 36,000 tests every year at the rate of 3,000 tests per month.

 

In May 2021, the following results were recorded:

Number of tests carried out3,600
 £
Chemicals used in tests: 33,750 millilitres at £0.48 per ml16,200
Laboratory workers: 925 hours at £16.20 per hour14, 985
Fixed overhead of the testing centre7,500
Total cost38, 685
Charge for each test 3,600 at £15.5055,800
Profit for May17, 115

 

Required (show your workings for calculations & write in your own words):

 

(a) For direct materials, calculate the price variance, efficiency variance, and flexible budget variance (1.5 points).

(b) For direct labour, calculate the price variance, efficiency variance, and flexible budget variance (1.5 points).

(c) Explain fully one possible cause for the following variances you calculated above (4 points):

(i) Direct materials price variance

(ii) Direct materials efficiency variance

(iii) Direct labour price variance

(iv) Direct labour efficiency variance

(d) "Variances are a waste of time to calculate!" Do you agree? Explain. (3 points)

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