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	$	25.00	per ounce	$	55.00
Direct labor	0.50	hours	$	15.00	per hour		7.50
Variable manufacturing overhead	0.50	hours	$	3.00	per hour		1.50
Total standard cost per unit						$	64.00

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

1. Materials purchased, 12,000 ounces at a cost of $282,000.

2. There was no beginning inventory of materials; however, at the end of the month, 2,750 ounces of material remained in ending inventory.

3. The company employs 25 lab technicians to work on the production of Fludex. During November, they each worked an average of 110 hours at an average pay rate of $11.50 per hour.

4. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $2,400.

5. During November, the company produced 4,100 units of Fludex.

Required:

3. Compute the variable overhead rate and efficiency variances.

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

Variable overhead rate variance:

Variable overhead efficiency variance:

Answer 1

• Requirement 3 asked

Variable Overhead Rate Variance	$                                                     5,850.00	Favourable-F
Variable Overhead Efficiency Variance	$                                                     2,100.00	Unfavourable-U

• Calculations

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate = $ 2400 / 2750 hrs	)	x	Actual Labor Hours
(	$                                3.00	-	$                       0.87272727	)	x	2750
	5850
	Variance		$              5,850.00			Favourable-F
Variable Overhead Efficiency Variance
(	Standard Hours = 4100 units x 0.5 hrs	-	Actual Hours	)	x	Standard Rate
(	2050	-	2750	)	x	$                           3.00
	-2100
	Variance		$              2,100.00			Unfavourable-U