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: Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit Standard Quantity or Hours 2.10 ounces 0.40 hours 0.40 hours Standard Price or Rate $24.00 per ounce $14.00 per hour $ 2.50 per hour Standard Cost $50.40 5.60 1.00 $57.00 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 11,500 ounces at a cost of $259,325. b. There was no beginning inventory of materials; however, at the end of the month, 2,700 ounces of material remained in ending inventory. c. The company employs 23 lab technicians to work on the production of Fludex. During November, they each worked an average of 100 hours at an average pay rate of $11.00 per hour. d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $2,300. e. During November, the company produced 4,100 units of Fludex.

Answer 1

Req-1(A)Computation of Material Price & Quanntity Variance

Material price variance = (SP - AP) * AQ purchased ' = ($24 - $22.55) * 11500 = $16675 F

Material quantity variance = (SQ - AQ Used ) * SP ' = (8610 Ounce - 8800 Ounce ) * $24 = $4560 U

Refrence

Standard qty of material = 4100 Units *2.10 Ounces= 8610 ounce

Actual quantity of material purchased = 11500 ounce

Actual quantity of material used = 11500 - 2700 = 8800 ounce

Standard price of material = $24 per ounce

Actual price of material = $259,325 / 11500 = $22.55

Req-1(B),Yes , Company should signed a contract because , Material Price variance shows favourable which shows that actual material procurement price is lesser than Standard Price.

Solution 2a:

Refrence

Standard hours of direct labor = 4100 Unit *0.40 Hour = 1640 hours

Standard rate of direct labor = $14 per hour

Actual hours of direct labor = 23 Technician *100 Hour = 2300 hours

Actual rate of direct labor = $11 per hour

Req-2(a) Labour Rate & Efficiency Variance

Direct labor rate variance = (SR - AR) * AH = ($14 - $11) * 2300 Hour = $6900 F

Direct labor efficiency variance = (SH - AH) * SR = (1640 - 2300) * $14= $9240 U

Req:2(b)NO, New labor mix should not be continued because Employing more assistant rather senior technician resulted in favorable direct labor rate variance but unfavorable laor efficiency variance. Further unfavorable efficiency variance is higher than favorable rate variance,

Req-3 Variable OH Rate & Efficiency Variance

Variable overhead rate variance = (SR - AR) * AH = ($2.50 - $1) *2300 = $3450 F

Variable overhead eficiency variance = (SH - AH) * SR = (1640 - 2300) * $2.50 = $1650U

Refrence

Standard hours of direct labor = 4100 Unit *0.40 Hour = 1640 hours

Standard rate of variable overhead= $2.50 per hour

Actual hours of direct labor = 23 Technician *100 Hour = 2300 hours

Actual rate of variable overhead = $2300 / 2300 = $1