Question

Becton Labs, Inc., produces various chemical compounds for industrial use. One compound, called Fludex, is preparec using an elaborate distilling process. The company has developed standard costs for one unit of Fludex, as follows: Complete this question by entering your answers in the tabs below. Standard Price Standard or Rate Cost Req 1A Req 1B Req 2A Req 2B Standard Quantity or Hours 2.50 ounces Req3 Direct materials $28.00 per ounce $70.00 0.50 hours $13.00 per $13.00 hour 6.50 Direct labor Variable manufacturing overhead Total standard cost per unit For direct labor, compute the rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) Show less 0.50 hours $ 3.60 per hour 1.80 $78.30 Labor rate variance Labor efficiency variance During November, the following activity was recorded related to the production of Fludex < Reg 1B Reg 2 > Complete this question by entering your answers in the tabs below. a. Materials purchased, 13,500 ounces at a cost of $361800 b. There was no beginning inventory of materials, however, at the end of the month, 2,900 ounces of material remaine in ending inventory. The company employs 21 lab technicians to work on the production of Fludex. During November, they each worked an average of 140 hours at an average pay rate of $11.50 per hour d. Variable manufacturing overhead is assigned to ludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $4,400. e. During November, the company produced 4,200 units of Fludex Req 1A Reg 1B Reg 2A Req 2B Req3 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? In the past, the 21 technicians employed in the production of Fludex consisted of 3 senior technicians and 18 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? Show less Yes ONO 2. For direct labor a. Compute the rate and efficiency variances. b. In the past, the 21 technicians employed in the production of Fludex consisted of 3 senior technicians and 18 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? - Req 2A Reg 3 > Complete this question by entering your answers in the tabs below. 3. Compute the variable overhead rate and efficiency variances Req 1A Req 1B Req 2A Req 2B Req3 Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Req 2A Req 2B Req3 Compute the variable overhead rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (I.e., zero variance). Input all amounts as positive values.) Show less For direct materials, compute the price and quantity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.) Show less Variable overhead rate variance Variable overhead efficiency variance Materials price variance Materials quantity variance < Req 2B Reg3 Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Reg 2A Reg 2B Req3 For direct materials, 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? Show less Yes IONO ( Reg 1A Reg 2A >

Answer 1

Solution 1a:

Standard quantity of material for actual production = 4200*2.50 = 10500 ounce

Actual quantity of material purchased = 13500 ounce

Actual quantity of material used = 13500 - 2900 = 10600 ounce

Standard price of material = $28 per ounce

Actual price of material = $361,800 / 13500 = $26.80

Material price variance = (SP - AP) * AQ purchased = ($28 - $26.80) * 13500 = $16,200 F

Material quantity variance = (SQ - AQ) * SR = (10500 - 10600) * $28 = $2,800 U

Solution 1b:

As price offered by the new supplier is lesser than standard price of material, therefore company should sign long term purchase contract with the new supplier.

Solution 2a:

Standard hours of direct labor = 4200*0.5 = 2100 hours

Standard rate of direct labor = $13 per hour

Actual hours of direct labor = 21*140 = 2940 hours

Actual rate of direct labor = $11.50 per hour

Direct labor rate variance = (SR - AR) * AH = ($13 - $11.50) * 2940 = $4,410 F

Direct labor efficiency variance = (SH - AH) * SR = (2100 - 2940) * $13 = $10,920 U

Solution 2b:

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, therefore it is recommended new labor mix should not be continued.

Solution 3:

Standard hours of direct labor = 4200*0.5 = 2100 hours

Standard rate of variable overhead= $3.60 per hour

Actual hours of direct labor = 2940

Actual rate of variable overhead = $4,400 / 2940 = $1.49659

Variable overhead rate variance = (SR - AR) * AH = ($3.60 - $1.49659) * 2940 = 6,184 F

Variable overhead efficiency variance = (SH - AH) * SR = (2100 - 2940) * $3.60 = $3,024 U