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:

There was no beginning inventory of materials; however, at the end of the month, 2,850 ounces of material remained in ending inventory.

The company employs 20 lab technicians to work on the production of Fludex. During November, they worked an average of 160 hours at an average rate of $11.00 per hour.

Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $6,000.

Compute the price and quantity variances. (Round your "price per ounce" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Compute the rate and efficiency variances. (Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

In the past, the 20 technicians employed in the production of Fludex consisted of 7 senior technicians and 13 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to save costs. Would you recommend that the new labor mix be continued?

Compute the variable overhead rate and efficiency variances. (Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

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:

Explanation / Answer

Compute the price and quantity variances. (Round your "price per ounce" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) Standard Price Actual Price × Actual Quantity = Variance Materials price variance 27 25.4 13,000 20,800 F Standard Quantity Actual Quantity × Standard Price = Variance Materials quantity variance 10080 10150 27 -1890 U 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? Yes Yes, since the price variance is favourable implying that the actual rate of purchase is lower than the standard rates No 2 For direct labor: a. Compute the rate and efficiency variances. (Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) Standard Rate Actual Rate × Actual Hours = Variance Labor rate variance 12 11 160 160 F Standard Hours Actual Hours × Standard Rate = Variance Labor efficiency variance 2520 3360 12 -10080 U b. In the past, the 20 technicians employed in the production of Fludex consisted of 7 senior technicians and 13 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to save costs. Would you recommend that the new labor mix be continued? Yes No. The labor mix cannot be continued since although the labor rate variance is favourable,it is completely offset by the substantial amount of labour efficiency variance, as shown above. No 3 Compute the variable overhead rate and efficiency variances. (Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).) Standard Rate Actual Rate × Actual Hours = Variance Variable overhead rate variance 3.5                                       1.79 3360 5760 F Standard Hours Actual Hours × Standard Rate = Variance Variable overhead efficiency variance 2520 3360 3.5 -2940 U

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