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 2.20 ounces 0.80 hours 0.80 hours Standard Price or Rate $16.00 per ounce $12.00 per hour $ 2.50 per hour Standard Cost $ 35.20 9.60 2.00 $ 46.80 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 11,000 ounces at a cost of $160,600. b. There was no beginning inventory of materials; however, at the end of the month, 3,100 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 150 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 $4,200. e. During November, the company produced 3,500 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 23 technicians employed in the production of Fludex consisted of 7 senior technicians and 16 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. Complete this question by entering your answers in the tabs below. Reg 1A Reg 1B Reg 2A Req 2B Reg 3 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.) Materials price variance Materials quantity variance < Reg 14 Req 1B >

Answer 1

Answer

• Working

Actual DATA for		3500	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	7900	$                14.60	$        115,340.00
Direct labor	3450	$                11.00	$           37,950.00
Variable Overhead	3450	$                   1.22	$             4,200.00

Standard DATA for		3500	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 2.2 ounces x 3500 units)=7700 ounces	$                16.00	$     123,200.00
Direct labor	( 0.8 hours x 3500 units)=2800 hours	$                12.00	$       33,600.00
Variable Overhead	( 0.8 hours x 3500 units)=2800 hours	$                   2.50	$         7,000.00

• Requirement 1

Part A

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                              16.00	-	$                    14.60	)	x	7900
	11060
	Variance		$            11,060.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	7700	-	7900	)	x	$                        16.00
	-3200
	Variance		$              3,200.00			Unfavourable-U

Part B

YES, it is recommended because the prices offered by the seller are LESS than the standard price of material.

• Requirement 2

Part A

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                              12.00	-	$                    11.00	)	x	3450
	3450
	Variance		$              3,450.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	2800	-	3450	)	x	$                        12.00
	-7800
	Variance		$              7,800.00			Unfavourable-U

Part B

NO, it is not recommended, because this has led to lower efficiencies among workers, as evident by Unfavourable Efficiency Variance, calculated above.

• Requirement 3

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                2.50	-	$                       1.22	)	x	3450
	4425
	Variance		$              4,425.00			Favourable-F
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	2800	-	3450	)	x	$                           2.50
	-1625
	Variance		$              1,625.00			Unfavourable-U