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 2.10 ounces $ 24.00 per ounce $ 50.40 Direct labor 0.40 hours $ 14.00 per hour 5.60 Variable manufacturing overhead 0.40 hours $ 2.50 per hour 1.00 Total standard cost per unit $ 57.00 During November, the following activity was recorded related to the production of Fludex: Materials purchased, 11,500 ounces at a cost of $259,325. There was no beginning inventory of materials; however, at the end of the month, 2,700 ounces of material remained in ending inventory. The company employs 23 lab technicians to work on the production of Fludex. During November, they each worked an average of 100 hours at an average pay rate of $11.00 per hour. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $2,300. During November, the company produced 4,100 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 23 technicians employed in the production of Fludex consisted of 4 senior technicians and 19 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

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.								Fludex
								Technician
Material Variance				Labor Variance				Overhead Variance
Standard Material Price		$         24.00		Standard Hour Rate		$14.00		Standard Hour Rate		$ 2.50
Standard Quantity	4100*2.1	8610		Standard Hour	4100*0.4	1640		Standard Hour	4100*0.4	1640
Actual Quantity		11500		Actual Hours		2300		Actual Hours		2300
Actual Quantity used	11500-2700	8800
Actual Matrial Price	259325/11500	$         22.55		Actual Hour Rate		$11.00		Actual Hour Rate	2300/2300	$ 1.00
Material Price Variance	AQ(AP-SP)			Labor Rate Variance	AH(AR-SR)			Overhead Rate Variance	AH(AR-SR)
	11500*(22.55-24)				2300*(11-14)				2300*(1-2.5)
	16675 Favorable				6900 Favorable				3450 Favorable
Material Quantity Variance	SP(AQ-SQ)			Labor Efficiency Variance	SR(AH-SH)			Overhead Efficiency Variance	SR(AH-SH)
	24*(8800-8610)				14*(2300-1640)				2.5*(2300-1640)
	4560 Unfavorable				9240 Unfavorable				1650 Unfavorable
Part 2b:
Policy should not be continued since as lowring senior technicians impacting efficiency resulting more standard hours.
And unfavorable Rate variances.
Part 3b:
Since Variable Overhead Efficiency variance also using same Higher Labor Hours, it has direct impact on efficiency variance