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 2.40 ounces 0.60 hours 0.60 hours Standard Price or Rate $ 27.00 per ounce $12.00 per hour $ 3.50 per hour Standard Cost $64.80 7.20 2.10 $ 74.10 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 13,000 ounces at a cost of $330,200. b. There was no beginning inventory of materials; however, at the end of the month, 2,850 ounces of material remained in ending inventory. C. The company employs 20 lab technicians to work on the production of Fludex. During November, they each worked an average of 160 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 $6,000. e. 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 20 technicians employed in the production of Fludex consisted of 7 senior technicians and 13 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.

Answer 1

20800 F 1890 U YES Answer Mateial Price Variance (AQ*AP)-(AQ*SP) Matrial Quanity Varaince (AQ*SP)-(SQ*SP) would you recommand the sing the Contract Labor rate Variance (AH*AR)-(AH*SR) labor Efficiency Varaince (AH*SR)-(SH*SR) Would you Recommand the New Labor Mix Overhead Rate Variance (AH*AR-AH*SR) Overhead Efficiency Varaince (AH*SR)-(SH*SR) 3200 F 8160 U NO 2000 F 1700 U

27.00 Per ounce 2.4 Ounces 10080 Ounces 4200 Units 13000 Ounces 10150 Ounces 25.40 Per ounce AP Direct Material Standard Price Standard quantity Per unit Standard Quantity for Actual Output SQ Actual Output Actual Quantity Purchased AQP Actual Quanity Used AQ Actual Price of Material Direct Labor Standard Rate SR Standard hours per unit Standard Hours for Actual output SH Actual Output Actual hours Worked =20*160 AH Actual Rate AR Varaible OH Standard Rate SR Standard hours per unit Standard Hours for Actual output SH Actual Output Actual hours Worked =20*160 AH Actual rate =6000/3200 AR 12 Per hour 0.6 hours 2520 Hours 4200 Units 3200 hours 11.00 Per hour 2.50 per hour 0.60 hours 2520 Hours 4200 Units 3200 hours 1.88 Per hour