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		Standard Price or Rate			Standard Cost
Direct materials	2.60	ounces	$	20.00	per ounce	$	52.00
Direct labor	0.60	hours	$	16.00	per hour		9.60
Variable manufacturing overhead	0.60	hours	$	4.50	per hour		2.70
Total standard cost per unit						$	64.30

During November, the following activity was recorded related to the production of Fludex:

1. Materials purchased, 13,000 ounces at a cost of $244,400.

2. There was no beginning inventory of materials; however, at the end of the month, 3,300 ounces of material remained in ending inventory.

3. The company employs 20 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 $14.00 per hour.

4. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $6,500.

5. During November, the company produced 3,600 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 4 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.

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

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.)

	Labor rate variance not attempted not attempted 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.)

	Variable overhead rate variance Variable overhead efficiency variance

Answer 1

SP 20.00 Per ounce 2.6 Ounces 9360 Ounces 3600 Units 13000 Ounces 9700 Ounces 18.80 Per ounce Data 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(244400/13000) AP Direct Labor Standard Rate SR Standard hours per unit Standard Hours for Actual output Actual Output Actual hours Worked =20*150 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*150 AH Actual rate=6500/3000 AR SH 16 Per hour 0.6 hours 2160 Hours 3600 Units 3000 hours 14.00 Per hour 4.50 Per hour 0.60 hours 2160 Hours 3600 Units 3000 hours 2.17 Per hour I

15600F 6800 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) 6000 F 13440 U NO 7000 F 3780 U