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 Quantity or Hours Standard Price Standard or Rate $19.00 per ounce $15.00 per hour 4.00 per hour Cost Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit 2.50 ounces 0.70 hours 0.70 hours $47.50 10.50 2.80 $60.80 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 12,500 ounces at a cost of $223,125 b. There was no beginning inventory of materials, however, at the end of the month, 3,250 ounces of material remained in ending c. The company employs 21 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 3,500 units of Fludex. inventory 150 hours at an average pay rate of $12.50 per hour. during November totaled $5,100

Explanation / Answer

1(A)Computation of Direct Material Price & Quantity Variance Direct Material Price Price variance (SP-AP)AQ ($19-$17.85)*12500 $14,375 Favourable Direc Material Quantity Variance (SQ-AQ)SP ( 8750-9250)*$19 ($9,500) Un Favourable 1(B), Yes company sign the contract with new material Supplier 2(A)Computation of Direct Labour Rate & Efficiency Variance Direct Labour Rate variance (SR-AR)*AH ($15-$12.50)3150 $7,875 Favourable Direct Labour Efficiency Variance (SH-AH)SR (2450-3150)*15 ($10,500) Un Favourable 2(B)No, because overall labour cost variance is negative side. (3) Computation of variable Overhead   Rate & Efficiency & Spending   Variance Direct Variable Overhead Rate Variance ( SR-AR)*AH ($4-$1.619)*3150 $7,500 Favourable Direct Variable Overhead Efficiency Variance (SH-AH)SR (2450-3150)*$4 ($2,800) Un Favourable Direct Variable Overhead Spending Variance Price variance+ Quantity Variance $4,700 Working Note 1) Actual Price in Material Price Variance = 223125/12500 = $17.85 2) Standard Quantity in Material Quantity Variance = 3500*2.5 = 8750 Ounce 3) Actual Quantity in Material Quantity Variance = 12500 - 3250 = 9250 Ounce 4) Actual Hours in Labor Rate Variance/Labor efficiency Variance = 21*150 = 3150 Hour 5) Standard Hours in Labor efficiency Variance/Variable Overhead efficiency Variance = 0.7 *3500 = 2450 Hour 6) Actual Rate in Variable Overhead Rate Variance = 5100/3150 = $1.619

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