Becton Labs, Inc., produces various chemical compounds for industrial use. One c

Question

Becton Labs, Inc., produces various chemical compounds for industrial use. One compound, called Fludex is prepared using an elaborate distilling process. The company has developed standard costs for one unit of Fludex, as follows Standard Price or Rate $21.00 per ounce $15.00 per hour S 3.50 per hour Standard Standard Quantity Cost Direct materials Direct labor Variable manufacturing overhead 2.40 ounces 0.80 hours 0.80 hours 50.40 12.00 2.80 65.20 During November, the following activity was recorded relative to production of Fludex a. Materials purchased, 13,500 ounces at a cost of $266,625 b. There was no beginning inventory of materials; however, at the end of the month, 4,200 ounces of material remained in ending inventory C. The company employs 24 lab technicians to work on the production of Fludex. During November, they worked an average of 140 hours at an average rate of $14.50 per hour d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $6,800 e. During November, 3,800 good units of Fludex were produced Required 1. For direct materials a. Compute the price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).) Materials price variance Materials quantity variance

Explanation / Answer

1) a) Materials Price Variance = (Std Price - Actual Price)*Actual Qty purchased

Actual price = Actual cost of materials purchased/Actual Qty purchased

= $266,625/13,500 ounces = $19.75 per ounce

Materials Price Variance = ($21.00-$19.75)*13,500 ounces = $16,875 F

Materials Quantity Variance = (Std Qty - Actual Qty used)*Std Price

Actual Qty used = Actual Qty of materials purchased - Ending Inventory

= 13,500 ounces - 4,200 ounces = 9,300 ounces

Std Qty = Actual units produced*Std Qty per unit

= 3,800 units*$2.40 ounces = 9,120 ounces

Materials Quantity Variance = (9,120 - 9,300)*$21.00 per ounce = ($3,780) U

1) b) The company should sign the contract with the supplier because the materials price variance is favorable for $16,875.

2) a) Labor Rate Variance = (Std Rate - Actual Rate)*Actual Hrs worked

Actual Hrs worked = 24 technicians*140 hrs = 3,360 hrs

Std Hrs = Actual units of output*Std hour per unit

= 3,800 units*0.80 hrs = 3,040 hrs

Labor Rate Variance = ($15.00 - $14.50)*3,360 hrs = $1,680 F

Labor Efficiency Variance = (Std Hrs - Actual Hrs)*Std Rate

= (3,040 - 3,360)*$15.00 = ($4,800) U

2) b) No, new labor mix should not be continued because new labor mix increases overall labor costs as there is an unfavorable labor efficiency variance of $4,800.

3) Actual Variable OH Rate = Actual Variable OH/Actual hrs

= $6,800/3,360 hrs = $2.02381 per hour

Variable Overhead Rate Variance = (Std Rate - Actual Rate)*Actual Hrs

= ($3.50 - $2.02381)*3,360 hrs = $4,960 F

Variable Overhead Efficiency Variance = (Std hrs - Actual hrs)*Std Rate

= (3,040 hrs - 3,360 hrs)*$3.50 per hour = ($1,120) U

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