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: 50.00 31.50 4.90 86.40 2.5 ounces 1.4 hours 1.4 hours $28.00 per ounce $22.50 per hour Direct materials t labor Variable manufacturing overhead cost 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 inventory 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 during November totaled $18,200. e. During November, the company produced 3,750 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 anxious to enter into a long-term purchase contract.Would you 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 recommend that the new labor mix be continued? experimented with fewer senior technicians and more assistants in order to reduce labor costs. Would you 3. Compute the variable overhead rate and efficiency variances

Explanation / Answer

answer 2a.

(i)

(ii)

Labor efficiency variance = SR (AH – SH)

Actual hours (AH) = 35 technicians × 160 hours per technician = 5,600 hours

Standard Hours (SH) = 3,750 units × 1.4 hours per technician = 5,250 hrs

3.

(i)

Variable overhead spending variance = AH (AR – SR)

            5,600 hours ($3.25 per hour* – $3.50 per hour) = $1,400 F

            *$18,200 ÷ 5,600 hours = $3.25 per hour

(ii)

            Variable overhead efficiency variance = SR (AH – SH)

            $3.50 per hour (5,600 hours – 5,250 hours) = $1,225 U

Actual hours (AH) = 35 technicians × 160 hours per technician = 5,600 hours

Standard Hours (SH) = 3,750 units × 1.4 hours per technician = 5,250 hrs

Labor rate variance = AH (AR – SR) 5,600 hours ($12.00 per hour – $12.50 per hour) = $2,800 F

(ii)

Labor efficiency variance = SR (AH – SH)

$12.50 per hour (5,600 hours – 5,250 hours) = $4,375 U

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