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 2.20 ounces $ 23.00 per ounce $ 50.60 Direct labor 0.70 hours $ 12.00 per hour 8.40 Variable manufacturing overhead 0.70 hours $ 3.00 per hour 2.10 Total standard cost per unit $ 61.10 During November, the following activity was recorded related to the production of Fludex: Materials purchased, 11,000 ounces at a cost of $237,600. There was no beginning inventory of materials; however, at the end of the month, 2,650 ounces of material remained in ending inventory. The company employs 18 lab technicians to work on the production of Fludex. During November, they each worked an average of 190 hours at an average pay rate of $10.50 per hour. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $6,200. During November, the company produced 3,750 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 18 technicians employed in the production of Fludex consisted of 5 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.

Answer 1

Summary of Answer
Material
Material price variance	15,400	Favorable
Material quantity variance	2,300	Unfavorable
Labor
Labor rate variance	5,130	Favorable
Labor efficiency variance	9,540	Unfavorable
Variable Overhead
Variable overhead rate variance	4,060	Favorable
Variable overhead efficiency variance	2,385	Unfavorable
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? (Answer: Material price variance is favorable. Therefore, I would recommended to sign the contract.)		Yes
In the past, the 18 technicians employed in the production of Fludex consisted of 5 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? (Answer: Unfavorable labor efficiency variance more than favorable labor rate variance. Therefore, I wouldn't be recommended to new labor mix be continued.)		NO

Calculation

	Minus sign indicate unfavorable variance.
	Measure	ounce
	Standard price per ounce	$          23.00
237600/11000	Actual price per ounce	$          21.60
3750*2.2	Standard quantity in ounces	8250
	Actual quantity purchased in ounces	11000
11000-2650	Actual quantity used in ounces	8350
	Standard price per ounce	23.00
Less	Actual price per ounce	-21.60
	Difference	1.40
Multiply	Actual quantity purchased in ounces	11000
	Material price variance	$        15,400
	Indicate	Favorable
	Standard quantity in ounces	8250
Less	Actual quantity used in ounces	-8350
	Difference	-100
Multiply	Standard price per ounce	23.00
	Material quantity variance	$        (2,300)
	Indicate	Unfavorable

	Minus sign indicate unfavorable variance.
	Measure	Hour
	Standard rate per Hour	$            12.00
	Actual rate per Hour	$            10.50
3750*0.7	Standard labor Hours	2625
18*190	Actual labor Hours	3420
	Standard rate per Hour	12.00
Less	Actual rate per Hour	-10.50
	Difference	1.50
Multiply	Actual labor Hours	3420
	Labor rate variance	$            5,130
	Indicate	Favorable
	Standard labor Hours	2625
Less	Actual labor Hours	-3420
	Difference	-795
Multiply	Standard rate per Hour	12.00
	Labor efficiency variance	$          (9,540)
	Indicate	Unfavorable

	Minus sign indicate unfavorable variance.
	Measure	Hour
	Standard variable overhead rate per Hour	$                3.00
6200/3420	Actual variable overhead rate per Hour	$         1.81287
3750*0.7	Standard Hours	2625
18*190	Actual Hours	3420
	Standard variable overhead rate per Hour	3.00000
Less	Actual variable overhead rate per Hour	-1.81287
	Difference	1.18713
Multiply	Actual Hours	3420
	Variable overhead rate variance	$              4,060
	Indicate	Favorable
	Standard Hours	2625
Less	Actual Hours	-3420
	Difference	-795
Multiply	Standard variable overhead rate per Hour	3.00
	Variable overhead efficiency variance	$           (2,385)
	Indicate	Unfavorable