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 2.60 ounces 0.60 hours 0.60 hours Standard Price or Rate $29.00 per ounce $12.00 per hour $ 3.50 per hour Standard Cost $75.40 7.20 - 2.10 $ 84.70 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 14,000 ounces at a cost of $388,500. b. There was no beginning inventory of materials; however, at the end of the month, 2,950 ounces of material remained in ending inventory. c. The company employs 22 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 $5,500. e. During November, the company produced 4,200 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 22 technicians employed in the production of Fludex consisted of 5 senior technicians and 17 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

l.a. Standard quantity of male Belfoo achro produchon=4,200x 2.60= 10,9206 conce Achael acantity o-maledice perchased = 14,000 ounce Achree quantity of male of col cesed = 14,000 -2930 = 11,050 ounce Standard pofce of mateofal - $29.00 per ounce Achmel porce of materfall - $ 388,500/14,000 - $27.75 material pofce vanance = CSP-AP) x AA perchased = 629 - $ 27.75) x 14.000 ->$13,500 F Materfal quart fty lofarce= CSQ-AQ) X AG pernased yes, =(10,920-11,050) 29 => $3770 U 1.b. As pofce ofered by new supplier is lower than standard poce, there loro company shocela sign the contact with new supplies. 2.a Standard heads of droect laboo = 4,20x0.60 = 2,520 halos stadard sale of direct laboo = $12.00 per hoco Actual hours of direct bboo = 22x150 = 3300 hours Actueel paleo direch laboo = $11.00 per houd Derect laboo cale lariance = (R-ARXAH = $12-$1x 3,30 Dioechlaboo of Sciency wolare-CSH-AH)XSR=(2520-3300)x12 - $9,300 2.b. 10, The New mix descelting po favovable dioechlabor sole wodance, however due to expeofenced staff engaged more, time, taken ondeaction coeased Descelting po anfarocidable laboo effecrecy lavance As the direct laboo Preferency widence B higher than the favodicable cale verance, a new laboo Mpy shaceld not be continued 36 Standard hours of detect laboo - 4200 X0-60 = 2,520 hocios Stadard Dale of-arble coohead = $3.50 per hour Actizeo hocess of direct laboo = 88 x 150 = 3.300 hours Achree sale of variable aeghend = $ 5,520 / 3,300 huids = 1.667 peohao Variable acohcad cale vaofaro CSR-AR)YAH = ($3.00 - $1.667 )* 3300 -> $ 6,009 F variable coherd el Aconcs varare. (SH AH) SR = (2,520 - 3300) X3.50 => $ 2730 U