Variance Analysis in a Process-Costing Setting, Service Firm

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 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:

1. Beginning work in process: 1,250 tests, 60 percent complete
2. Tests started: 25,000
3. Ending work in process: 2,500 tests, 40 percent complete
4. Direct labor: 47,000 hours at $19 per hour
5. Direct materials purchased and used: 102,000 at $4.25 per ounce
6. Variable overhead: $144,000
7. Fixed overhead: $300,000
8. 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.

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Does standard costing simplify process costing?

Yes

2. Calculate price and quantity variances for direct materials and direct labor.

MPV	$25,500	Favorable
MUV	????????	Unfavorable
LRV	????????	Unfavorable
LEV	????????	Favorable