Question

Becton Labs, Inc, produces various chemical compounds for industrial use. One compound, called Fludex, is prepared using an elaborate costs for one unit of Fludex, as follows ting process. The company has developed standard Standard Direct materials Direct labor Variable manufacturing overhead Standardowy 2.70 ounces 0 50 hours 0.50 hours Standard Price of Rate $25.00 per ounce $15.00 per hour $ 300 per hour $55.00 TEO 150 964.00 During November, the following activity was recorded relative to production of Fludex a Materials purchased, 12.000 ounces at a cost of $262.000 b. There was no beginning inventory of materials, however, at the end of the month, 2.750 ounces of material remained in ending inventory c. The company employs 26 lab technicians to work on the production of Fludex During November, they worked an average of 110 hours at an average rate of 511 50 per hour d Vanable manufacturing overhead is assigned to Fludex on the basis of direct labor hours Variable manufacturing overhead costs during November and $2.400 e. During November, 4.100 good units of Fiudex were produced Required: 1. For direct materials a Compute the price and quantity variances input all amounts as positive values. Indicate the effect of each vanance by selecting effect (le, zero variance)) for favorable, for unfavorable and "None for Mate price varsince Materials quantity variance

Answer 1

1.a.
Material Price Variance = (Actual Price - Standard Price) x Actual Quantity Purchased
= ($23.50 - $25) x 12000 = $18000 (F)
Actual price = $282000/ 12000 = $23.50 per ounce

Material Quantity Variance = (Actual Quantity Used - Standard Quantity) x Standard price
= (9250 - 9020) x $25 = $5750 (U)
Standard Quantity = 4100 x 2.20 = 9020
Actual Quantity used = 12000 - 2750 = 9250

1.b. Since the Material Price variance is favorable, Answer is Yes, company should enter into long term contract

2.a
Direct labor rate variance = (Actual rate - Standard rate) x Actual hours
= ($11.50 - $15) x 2750 = $9625 (F)
Actual hours = 25 x 110

Direct labor efficiency variance = (Actual hours - Standard hours) x Standard rate
= (2750 - 2050) x $15 = $10500 (U)
Standard hours = 4100 x 0.50 = 2050

2.b.
No it is not recommended, since total labor variance is unfavorable

3.
Variable Overhead rate variance = Actual overhead - Standard rate x Actual hours
= $2400 - $3 x 2750 = $5850 (F)
Actual hours = 25 x 110

Direct labor efficiency variance = (Actual hours - Standard hours) x Standard rate
= (2750 - 2050) x $3 = $2100 (U)
Standard hours = 4100 x 0.50 = 2050