Becton Labs, Inc., produces various chemical compounds for industrial use. One c
ID: 2436366 • Letter: B
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 Standard Price Standard or Hours 2.5 ounces 1.4 hours 1.4 hours or Rate $20.00 per ounce $22.50 per hour $ 3.50 per hour Cost Direct materials Direct labor Variable manufacturing overhead $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 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 For direct labor, compute the rate and efficiency 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.) Labor rate variance Labor efficiency varianceExplanation / Answer
Answers
Actual DATA for
3750
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
9500
$ 18.75 [225000/12000]
$ 178,125.00
Direct labor
5600 [35 x 160]
$ 22.00
$ 123,200.00
Variable Overhead
5600
$ 3.25 [18200/5600]
$ 18,200.00
Standard DATA for
3750
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
9375
$ 20.00
$ 187,500.00
Direct labor
5250
$ 22.50
$ 118,125.00
Variable Overhead
5250
$ 3.50
$ 18,375.00
Material Price Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Quantity
(
$ 20.00
-
$ 18.75
)
x
9500
11875
Variance
$ 11,875.00
Favourable-F
Material Quantity Variance
(
Standard Quantity
-
Actual Quantity
)
x
Standard Rate
(
9375
-
9500
)
x
$ 20.00
-2500
Variance
$ 2,500.00
Unfavourable-U
YES, the new supplier should be contracted as price offered by him are lower than Standard price per ounce.
Labor Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 22.50
-
$ 22.00
)
x
5600
2800
Variance
$ 2,800.00
Favourable-F
Labour Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
5250
-
5600
)
x
$ 22.50
-7875
Variance
$ 7,875.00
Unfavourable-U
NO, because the new labor mix has resulted in lower efficiency and has taken more hours than standard hours.
Variable Overhead Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 3.50
-
$ 3.25
)
x
5600
1400
Variance
$ 1,400.00
Favourable-F
Variable Overhead Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
5250
-
5600
)
x
$ 3.50
-1225
Variance
$ 1,225.00
Unfavourable-U
Actual DATA for
3750
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
9500
$ 18.75 [225000/12000]
$ 178,125.00
Direct labor
5600 [35 x 160]
$ 22.00
$ 123,200.00
Variable Overhead
5600
$ 3.25 [18200/5600]
$ 18,200.00
Standard DATA for
3750
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
9375
$ 20.00
$ 187,500.00
Direct labor
5250
$ 22.50
$ 118,125.00
Variable Overhead
5250
$ 3.50
$ 18,375.00
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