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 Quantity or Hours Standard Price or Rate $20.00 per ounce $22.50 per hour $ 3.50 per hour Standard Cost Direct materials Direct labor Variable manufacturing overhead 2.5 ounces 1.4 hours 1.4 hours $50.00 31.50 4.90 $86.40 Total standard cost per unit During November, the following activity was recorded related to the production of Fludex a. Materials purchased, 12,000 ounces at a cost of $225,000 b. There was no beginning inventory of materials; however, at the end of the month, 2,500 ounces of material remained in ending C. The company employs 35 lab technicians to work on the production of Fludex. During November, they each worked an average of d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs e. During November, the company produced 3,750 units of Fludex. inventory 160 hours at an average pay rate of $22 per hour. during November totaled $18,200. Required: 1. For direct materials: a. Compute the price and quantity variances b. The materials were purchased from a new supplier who is anxious 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 35 technicians employed in the production of Fludex consisted of 20 senior technicians and 15 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 Complete this question by entering your answers in the tabs below. Req 1A Req1B Req 2A Req 2B Req 3 For direct materials, compute the price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) Materials price variance Materials quantity variance Reg 1A Req1B>

Explanation / Answer

Material Price Variance :-

(SR – AR) * AQ purchased

AR = 225000/12000 = $18.75

(20 – 18.75) * 12000 = $15000 (F)

Material Qty Variance :-

(SQ – AQ used) * SR

SQ = Actual output * SQ per unit

    = 3750 * 2.5 = 9375

AQ used = 12000 – 2500 = 9500

(9375 – 9500) * 20 = $2500 (U)

Yes the material were purchased from new supplier. The company need to sign the contract

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