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 or Rate Standard Cost Direct materials 2.50 ounces $ 28.00 per ounce $ 70.00 Direct labor 0.50 hours $ 13.00 per hour 6.50 Variable manufacturing overhead 0.50 hours $ 3.60 per hour 1.80 Total standard cost per unit $ 78.30 During November, the following activity was recorded related to the production of Fludex: Materials purchased, 13,500 ounces at a cost of $361,800. There was no beginning inventory of materials; however, at the end of the month, 2,900 ounces of material remained in ending inventory. The company employs 21 lab technicians to work on the production of Fludex. During November, they each worked an average of 140 hours at an average pay rate of $11.50 per hour. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $4,400. During November, the company produced 4,200 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 recommend that the company sign the contract? 2. For direct labor: a. Compute the rate and efficiency variances. b. In the past, the 21 technicians employed in the production of Fludex consisted of 3 senior technicians and 18 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to reduce labor costs. Would you recommend that the new labor mix be continued? 3. Compute the variable overhead rate and efficiency variances.

Explanation / Answer

1) for direct materials a. price and quantity variance Standard - Actual * Actual = Variance price price quantiy materials price variance 28 26.8 13,500 = 16200 F standard - Actual * Standard = Variance qty qty price materials quantity variance 10500 10,600 28 2800 U b. yes 2) for direct labor Standard - Actual * Actual = Variance rate rate hours labor price variance 13 11.5 2940 = 4410 F standard - Actual * Standard = Variance hours hours rate labor efficiency variance 2100 2,940 13 10920 U b. no 3) for variable overhead Standard - Actual * Actual = Variance rate rate hours Variable overhead rate 3.6 1.50 2,940 = 6184 F standard - Actual * Standard = Variance hours hours rate variable overhead efficiency 2100 2,940 3.6 3024 U

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