Question

In: Accounting

Becton Labs, Inc., produces various chemical compounds for industrial use. One compound, called Fludex, is prepared...

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 2.30 ounces $ 17.00 per ounce $ 39.10
Direct labor 0.60 hours $ 13.00 per hour 7.80
Variable manufacturing overhead 0.60 hours $ 2.50 per hour 1.50
Total standard cost per unit $ 48.40

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

Materials purchased, 11,500 ounces at a cost of $178,825.

There was no beginning inventory of materials; however, at the end of the month, 3,150 ounces of material remained in ending inventory.

The company employs 17 lab technicians to work on the production of Fludex. During November, they each worked an average of 160 hours at an average pay rate of $11.50 per hour.

Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $3,000.

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 17 technicians employed in the production of Fludex consisted of 4 senior technicians and 13 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.

Solutions

Expert Solution

1) for direct materials
a. price and quantity variance
Standard - Actual * Actual = Variance
price price quantiy
materials price variance 17 15.55 11,500 = 16675 F
standard - Actual * Standard = Variance
qty qty price
materials quantity variance 8050 8,350 17 5100 U
b. yes
2) for direct labor
Standard - Actual * Actual = Variance
rate rate hours
labor price variance 13 11.5 2720 = 4080 F
standard - Actual * Standard = Variance
hours hours rate
labor efficiency variance 2100 2,720 13 8060 U
b. no
3) for variable overhead
Standard - Actual * Actual = Variance
rate rate hours
Variable overhead rate 2.5 1.10 2,720 = 3800 F
standard - Actual * Standard = Variance
hours hours rate
variable overhead efficiency 2100 2,720 2.5 1550 U

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