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 QuantityStandard Price or RateStandard Cost Direct materials 2.5 ounces$20.00 per ounce$50.00 Direct labor 1.4 hours$12.50 per hour 17.50 Variable manufacturing overhead 1.4 hours$3.50 per hour 4.90 $72.40 During November, the following activity was recorded relative to 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 worked an average of 160 hours at an average rate of $12 per hour. 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, 3,750 good units of Fludex were produced .

Explanation / Answer

Material purchased = 12,000 ounces

Materials used        = 12,000 - 2500 = 9500 ounces

Standard qty for actual production = 2.5 ounces * 3750 = 9375 ounces

Actual rate           = 225,000/ 12,000 = $18.75

1) Material price variance = ( Std price - actual price ) Actual purchased

                                            = ($20 - $18.75) 12,000

                                            = 15,000(F)

2) Material Usage variance = (STd qty for actual production - actual used) Std rate

                                               = (9375 - 9500 ) 20

                                              = 2500(U)

3) Direct labor rate variance = ( Std rate - Actual rate) Actual hrs

                                                 = ($12.5 - $12 ) 35 *160

                                                = 2800(F)

4) Direct labor efficiency variance = ( std hrs for actual production - Actual hrs ) std rate

                                                          = (1.4 *3750 - 5600)12.5

                                                         = $4375 (U)

5) Variable spending variance = (Std rate - actual rate ) actual hrs

                                                      = ($3.5 - $3.25) 5600

                                                    = 1400(F)

6) Variable efficiency variance = ( Std hrs allowed - actual hr s) std rate

                                                   = (5250 - 5600 ) 3.50

                                                   = 1225(U)

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