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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.

Financial Management, Finance

  • Category:- Financial Management
  • Reference No.:- M92803734

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