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: Standard Quantity or Hours 2.40 ounces 0.80 hours 0.80 hours Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit Standard Price or Rate $21.00 per ounce $15.00 per hour $ 3.50 per hour Standard Cost $ 50.40 12.00 2.80 $ 65.20 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 13,500 ounces at a cost of $266,625. b. There was no beginning inventory of materials; however, at the end of the month, 4,200 ounces of material remained in ending E inventory c. The company employs 24 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 $14.50 per hour. Ed. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $6,800. e. During November, the company produced 3,800 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 24 technicians employed in the production of Fludex consisted of 4 senior technicians and 20 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

• for Direct material : () Marevi al Puie Variance → (Sta Ruce - Actual price) & Actual Qty consumed. m the above question : Std Price $21/ounce Actual Price Purchase cost Marwal purchased → $266625 = $19.75 /ounce 13 Soo Actual Qty consumed (opening inventry & Purchase- - closing mrensory) → (0+ 13500 - 4200) = 9300 mor= ($21-819.75 x 9300 = 11625& favourable. 2 (w marcial ory Variance ! (sta Oy - Actual Qty) x stl. Price. Here Sta. Oty> 2.40 Ounces X 3800 units = 9120 Qunces Actual aty = 9300 11 consumed Movy (9120-9300) 421 = -3780 (Adr), (6) As we can see that maraicu Price ranance is tre or favourable means new supplice provides mareial at len than our stol. price. Then I would recommend to sign the contrach

2. for. Direct Labour : (9) habour Rate variance ! Castel. Rule - Acheal Ralé ) x Aeneal Hour paed. Hell ! Std. Rate $18/ hour. Achua Rate $14.50/ hour Actual Hour paid 140 hours. LRre (15-$14.50) X 140x1680 Favourable 24. Labour_Efficiency Variance ! (sro Hour - Achial Hour wouleed) x Sta. Rate Here Sta. Hours 0.8o Hr. x 3800 ccruts = 340 Hrs. 1ЧoHrх ач = 33. Ну Lelouued Sta. Rate $15 then her > (3040- 33 60 )*815 = -4800(Adv). 6 for taking decisions regarding habour mix means how much senior staff and Anistone ratio would be for this purpose we have to calulare labour Mix variance which is the difference between Achual How worked in stol. proportion and actual Hour worked is actual proportion at std. Rate. A We calewate labour mix variance as follows. het suppose the giren proportion of u senior fech. and 20 Anisrants in is std. propertion and actual sportim be for nor. be a rech. and 22 Anistons ar pate srel. norginen for each one. so if this

should lower the sensen comes tech the then we other wise not. 13). Vainable on Rate variance ! stel. Rate - Actual Rate) x Actueel fr. World, Here . Sree Rate $3.50/hour Acheal Rate Scheal variable oH «ша! Ни чеd → 86800 = $2.02/ hour. 3360 HP Actual Hr. Wouled 3360 Hs. Variable OH Rale Variances ($3.50-52.00)x3360 = 4973 (Favourable) variable on Efticuniy variance! Catel.hr - Actual fr ) srl. Kate → (3040 – 3360)x 83:50 = -1120 (Adr)