Question

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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 Standard Price
or Rate
Standard Cost
Direct materials 2.40 ounces $ 27.00 per ounce $ 64.80
Direct labor 0.60 hours $ 12.00 per hour 7.20
Variable manufacturing overhead 0.60 hours $ 3.50 per hour 2.10
$ 74.10

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

a. Materials purchased, 13,000 ounces at a cost of $330,200.

b. There was no beginning inventory of materials; however, at the end of the month, 2,850 ounces of material remained in ending inventory.

c. The company employs 20 lab technicians to work on the production of Fludex. During November, they worked an average of 160 hours at an average 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 $6,000.

e. During November, 4,200 good units of Fludex were produced .

Required:

1. For direct materials:

a. Compute the price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)


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?

Yes
No

2. For direct labor:

a. Compute the rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)



b. In the past, the 20 technicians employed in the production of Fludex consisted of 7 senior technicians and 13 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to save costs. Would you recommend that the new labor mix be continued?

Yes
No


3. Compute the variable overhead rate and efficiency variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)

Solutions

Expert Solution

  • Working

Actual DATA for

4200

units

Quantity (AQ)

Rate (AR)

Actual Cost

Direct Material

10150

$            25.400

$        257,810.00

Direct labor

3200

$              11.00

$           35,200.00

Variable Overhead

3200

$                1.88

$             6,000.00

Standard DATA for

4200

units

Quantity (SQ)

Rate (SR)

Standard Cost

[A]

[B]

[A x B]

Direct Material

( 2.4 ounces x 4200 units)=10080 ounces

$                27.00

$     272,160.00

Direct labor

( 0.6 hours x 4200 units)=2520 hours

$                12.00

$       30,240.00

Variable Overhead

( 0.6 hours x 4200 units)=2520 hours

$                   3.50

$         8,820.00

  • Requirement 1

Part A

Material Price Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Quantity

(

$                     27.00

-

$                    25.40

)

x

10150

16240

Variance

$            16,240.00

Favourable-F

Material Quantity Variance

(

Standard Quantity

-

Actual Quantity

)

x

Standard Rate

(

10080

-

10150

)

x

$                        27.00

-1890

Variance

$              1,890.00

Unfavourable-U

Part B

YES, it is recommended because the prices offered by the seller are LESS than the standard price of material.

  • Requirement 2

Part A

Labor Rate Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Labor Hours

(

$                     12.00

-

$                    11.00

)

x

3200

3200

Variance

$              3,200.00

Favourable-F

Labour Efficiency Variance

(

Standard Hours

-

Actual Hours

)

x

Standard Rate

(

2520

-

3200

)

x

$                        12.00

-8160

Variance

$              8,160.00

Unfavourable-U

Part B

NO, it is not recommended, because this has led to lower efficiencies among workers, as evident by Unfavourable Efficiency Variance, calculated above.

  • Requirement 3

Variable Overhead Rate Variance

(

Standard Rate

-

Actual Rate

)

x

Actual Labor Hours

(

$                        3.50

-

$                       1.88

)

x

3200

5200

Variance

$              5,200.00

Favourable-F

Variable Overhead Efficiency Variance

(

Standard Hours

-

Actual Hours

)

x

Standard Rate

(

2520

-

3200

)

x

$                           3.50

-2380

Variance

$              2,380.00

Unfavourable-U


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