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: For direct labor, compute the rate and efficiency variances "U" for unfavorable, and "None" for no effect (i.e., zero vai Standard Quantity or Hours 2.28 ounces 2.60 hours 0.60 hours Standard Price or Rate $23.00 per ounce $14.00 per hour $ 2.50 per hour Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit 6.500 F Standard Cost $50.60 8.40 1.50 $ 60.50 Labor rate variance Labor efficiency variance 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.) During November, the following activity was recorded related to the production of Fludex: Variable overhead rate variance Variable overhead efficiency variance a. Materials purchased, 12.000 ounces at a cost of $259.800. 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 25 lab technicians to work on the production of Fludex. During November, they each worked an average of 130 hours at an average pay rate of $12.00 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 4,000 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 25 technicians employed in the production of Fludex consisted of 4 senior technicians and 21 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

Direct Material 23.00 Per Ounce Standard Price SP Standard quantity Per unit Standard Quantity for Actual Output| Actual Output Actual Quantity Purchased Actual Quanity Used 2.2 Ounces 8800 Ounces 4000 Units 12000 Ounces АQР AQ 8900 Ounces Actual Price of Material 21.65 Per Ounce АР Direct Labor 14 Per hour 0.6 hours 2400 Hours 4000 Units 3250 hours Standard Rate SR Standard hours per unit Standard Hours for Actual output Actual Output Actual hours Worked (26*150) SH АН Actual Rate AR 12.00 Per hour Varaible OH 2.50 Per hour 0.60 hours 2400 Hours 4000 Units 3250 hours Standard Rate Standard hours per unit Standard Hours for Actual output Actual Output Actual hours Worked (26*150) SR SH АН Actual Rate 1.29 Per hour AR

Answer Mateial Price Variance (AQ*AP)-(AQ*SP) Matrial Quanity Varaince (AQ*SP)-(SQ*SP) 16200 2300 Labor rate Variance (АН*AR)-(АН*SR) labor Efficiency Varaince (AH*SR)-(SH*SR) Overhead Rate Variance (АН*AR)-(АH*SR) Overhead Efficiency Varaince (AH*SR)-(SH*SR) 6500 11900 U 3925 2125