10 Check my work 3 Becton Labs, Inc., produces various chemical compounds for in
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10 Check my work 3 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 Quantity Standard Price Standard 10 points or Rate $22.00 per ounce $15.00 per hour 2.50 per hour or Hours Cost Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit 2.10 ounces 0.80 hoars 0.80 hoars $46.20 12.00 2.00 60.20 eBook During November, the following activity was recorded related to the production of Fludex Print b. There was no beginning Inventory of materials; however, at the end of the month, 2,600 ounces of material remained in References ending inventory c. The company employs 20 lab technicians to work on the production of Fludex. During November, they each worked an average of 180 hours at an average pay rate of $14.00 per hour d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $7,000 e. During November, the company produced 3,700 units of Fludex. Required: 1. For direct materials: a. Compute the price and quantity variances b. The materials were purchased from a new supplier who is ankious to enter into a long-term purchase contract. Would you recommend that the company sign the contract? 2. For direct labor: a. Compute the rate and efficiency variances b. In the past, the 20 technicians employed in the production of Fludex consisted of 8 senior technicians and 12 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to reduce labor costs. Would you recommend that the new labor mix be continued? 3. Compute the variable overhead rate and efficiency variances K Prev 3 f6 Next >Explanation / Answer
Note 1: Actual direct material price per ounce = Total cost incurred ÷ Material Quantity purchased
= $216,825 ÷ 10,500 ounces
= $20.65 per ounce
Note 2: Calculation of Actual quantity used and Standard quantity for actual production:
a. Actual quantity used or consumed = Opening inventory + Purchases - Closing Inventory
= Nil + 10,500 ounces - 2,600 ounces
= 7,900 ouncees
b. Standard quantity for production of one unit = 2.10 ounce
Standard quantity for production of 3,700 units = 3,700 x 2.10 ounce = 7,770 ounce
Note 3 Calculation of Actual labor hours:
Total number of employees = 20
Number of actual labor hours by each employee = 180 hours
Total number of actual labor hours = 180 hours x 20 employees = 3,600 hours
Note 4 Calculation of Standard labor hours for actual production/ output
Standard labor hours for production of one unit = 0.80 hours
Standard labor hours for production of 3,700 units unit = 3,700 units x 0.80 hours = 2,960 hours
Note 5 Calculation of Actual variable overhead rate
Total Actual variable overhead cost = $7,000
Actual labor hours = 3,600 hours
Actual variable overhead rate = $7,000 ÷ 3,600 hours = $1.94 per hour
Question 1 Calculation of Material price variance and Material Quantity variance:
Material Price Variance = Actual quantity purchased x (Standard price - Actual price)
= 10,500 ounces x ($22 - $20.65) -----> [Note -1]
= $14,175 (Favorable)
Material Quantity Varaince = Actual price x (Stnd. quanity for actual prod. - Actual quantitty)
= $20.65 x (7,770 ounces - 7,900 ounces) -----> [Note 2 ]
= 26,845 (Unfavorable)
Since Material price variance is favorable, it is recommended for the company to purchase raw material from new supplier. However steps (like quality increase etc..)need to be taken to reduce unfavorable material quantity variance.
Question 2 Calculation of Labor rate variance and Labor efficiency variance:
Labor rate variance = Actual hours x (Standard rate - Actual rate)
= 3,600 hours x ($15 - $14) ------> [Note 3]
= $3,600 (Favorable)
Labor efficiency variance = Standard rate x (Stad. hours for actual output - Actual hours)
= $15 x (2,960 hours - 3,600 hours) ------>[Note -4]
= $9,600 (Unfavorable)
Question 2 Calculation of Variable overhead rate variance and efficiency variance:
Overhead rate variance = Actual hours x (Standard rate - Actual rate)
= 3,600 x ($2.50 - $1.94) ------>[Note - 5]
= $2,016 (Favorable)
Overhead efficiency ratio = Standard rate x (Standard hours - Actual hours)
= $2.50 x (2,960 hours - 3,600 hours)
= $1,600 (Unfavorable)
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