Under a contract with the provincial government, ChemLabs Inc. analyzes the chemical and bacterial composition of well water in various municipalities in the interior of British Columbia. The contract price is $25.20 per test performed. The normal volume is 10,000 tests per month. Each test requires two testing kits, which have a standard price of $3.80 each. Direct labour to perform the test is 10 minutes at $22.80 per hour. At normal volume, the overhead costs are as follows:

Overhead is allocated based on direct labour hours.
During May 2016, 9,000 tests were performed. The records show the following actual costs and production data:

Test kits are kept in inventory at standard cost. At the end of May, no tests were in process.
Instructions
(a) Prepare a flexible overhead budget based on 80% of the normal volume.
(b) Prepare a standard cost card for a water test.
(c) Calculate the direct materials price and quantity variances and the direct labour rate and efficiency variances for May 2016, indicating whether they are favourable or unfavourable.
(d) Calculate the laboratory variable overhead variances for the month, indicating whether they are favourable or unfavourable.

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Variable overhead costs Indirect labour Utilities Labour-related costs Laboratory maintenance $18,000 4,000 15,000 11,000 $ 48,000 Fixed overhead costs Depreciation Supervisor Base utilities Insurance Total overhead 28,000 30,000 9,000 2,000 69,000 $117,000 Activity 19,000 18,500 Actual Cost Number of test kits purchased Number of test kits used Direct labour Total overhead costs Variable Fixed $70,300 37,646 45,200 1,623 hours 68,500