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, 3,100 ounces of material remained in ending inventory.

The company employs 23 lab technicians to work on the production of Fludex. During November, they worked an average of 150 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 $4,200.

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 23 technicians employed in the production of Fludex consisted of 7 senior technicians and 16 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).)

      

Standard Quantity Standard Price
or Rate Standard Cost   Direct materials    2.20 ounces $ 16.00 per ounce $ 35.20      Direct labor    0.80 hours $ 12.00 per hour    9.60      Variable manufacturing overhead    0.80 hours $ 2.50 per hour    2.00         $ 46.80        

Explanation / Answer

Answer 1a Material Price variance = (Actual cost incurred per unit - standard cost per unit ) * Actual quantity of units purchased Actual cost per ounce = $160600 / 11000 ounces = $14.60 per ounce Standard cost per ounce = $16 per ounce Actual quantity of material purchased = 11000 ounces Material Price variance = ($14.60 - $16) * 11000 = -$15400 F Direct material quantity variance = (Actual Quantity - standard quantity) * standard price Actual quantity of material used = 11000 - 3100 = 7900 ounces standard quantity material = 3500 units *2.20 ounce per unit = 7700 ounces Standard cost per ounce = $16 per ounce Direct material quantity variance = (7900 - 7700) * 16 = $3200 U Answer 1b Yes , company should sign the contract with new supplier. The answer is based on favourable material price variance Answer 2a Direct labour rate variance = (Actual labour cost per hour - standard labour cost per hour ) * Actual direct labour hours Actual labour cost per hour = $11 per hour Standard labour cost per hour = $12 per hour Actual direct labour hours = 150 hours Direct labour rate variance = (11 - 12) *150 = -$150 F Direct labour efficiency variance = (Actual labour hours - standard labour hours ) * standard labour rate per hour Standard labour cost per hour = $12 per hour Actual direct labour hours = 150 hours *23 technicians = 3450 hours Standard labour hours = 3500 units * 0.80 hour per unit = 2800 hours Direct labour efficiency variance = (3450 - 2800) *12 = $7800 U Answer 2b No, the new labour mix should not be continued. The answer is based on labour efficiency variance which is unfavorable. Answer 3a Variable overhead rate variance = Actual hours *(Actual overhead rate - standard overhead rate) standard overhead rate per hour = $2.50 per hour Actual overhead rate per hour = $4200 / 3450 hours = $1.22 per hour Actual labour hours incurred = 3450 hours Variable overhead rate variance = 3450 *(1.22 - 2.50) = -$4416 F Variable overhead efficiency variance =standard overhead rate * (Actual hours - standard hours) standard overhead rate per hour = $2.50 per hour Actual labour hours incurred = 3450 hours Standard hours = 2800 hours Variable overhead efficiency variance = 2.50 * (3450 - 2800) = $1625 U

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