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, 3,000 ounces of material remained in ending inventory.

The company employs 26 lab technicians to work on the production of Fludex. During November, they worked an average of 150 hours at an average rate of $14.00 per hour.

Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $8,000.

Compute the price and quantity variances. (Input all amounts as positive values. 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. (Input all amounts as positive values. 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 26 technicians employed in the production of Fludex consisted of 4 senior technicians and 22 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. (Input all amounts as positive values. 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

a. Material price variance = Actual Quantity (Standard price - Actual price) = 9500 (24 - 22.60) = 9500 (1.4) = 13300 (F)

Material quantity variance = Standard rate (Standard quantity - Actual quantity) = 24 (9430 - 9500) = 24 (70) = 1680 (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.  

Because overall material total variance = 13300 - 1680 = 11620 (F)

For direct labor:

a. Labour rate variance = Actual hour worked (Standard rate - Actual rate) = 26 * 150 (15 - 14) = 3900 (1) = 3900 (F)

Labour efficiency variance = Standard rate (Standard hour - Actual hour) = 15 (4100 * 0.8 - 3900) = 15 (620) = 9300 (U)

b. In the past, the 26 technicians employed in the production of Fludex consisted of 4 senior technicians and 22 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?

No

Because Total labour cost variance = 3900 - 9300 = 5400 (U)

3. Compute the variable overhead rate and efficiency variances.

Variable overhead rate variance = Actual hour at standard rate - Actual variable overhead = 3900 * 3.50 - 8000 = 5650 (F)

Variable overhead efficiency variance = Standard rate (Standard Hour - Actual hour) = 3.50 (4100 * 0.80 - 3900) = 3.50 (620) = 2170 (U)

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