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 Standard Price Standard Quantity or Hours or Rate Cost $18.0 ounce $14.00 $ 3.00 $43.20 9.80 2.10 $55.10 Direct materials 2.40 ounces Direct labor 0.70 hours hour Variable manufacturing overhead Total standard cost per unit 0.70 hours hour During November, the following activity was recorded related to the production of Fludex a. Materials purchased, 12,000 ounces at a cost of $198,000 b. There was no beginning inventory of materials; however, at the end of the month, 3,200 ounces of material remained c. The company employs 20 lab technicians to work on the production of Fludex. During November, they each worked d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing e. During November, the company produced 3,600 units of Fludex in ending inventory an average of 160 hours at an average pay rate of $12.00 per hour. overhead costs during November totaled $4,800 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 20 technicians employed in the production of Fludex consisted of 5 senior technicians and 15 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 18 16.5 12,000 = 18000 F standard - Actual * Standard = Variance qty qty price materials quantity variance 8640 8,800 18 2880 U b. yes 2) for direct labor Standard - Actual * Actual = Variance rate rate hours labor price variance 14 12 3200 = 6400 F standard - Actual * Standard = Variance hours hours rate labor efficiency variance 2520 3,200 14 9520 U b. no 3) for variable overhead Standard - Actual * Actual = Variance rate rate hours Variable overhead rate 3 1.50 3,200 = 4800 F standard - Actual * Standard = Variance hours hours rate variable overhead efficiency 2520 3,200 3 2040 U

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