Question

Check my work Check My Work button is now enabled 1 Item 3 Item 3 2.5 points 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 2.60 ounces $ 20.00 per ounce $ 52.00 Direct labor 0.60 hours $ 16.00 per hour 9.60 Variable manufacturing overhead 0.60 hours $ 4.50 per hour 2.70 $ 64.30 During November, the following activity was recorded relative to production of Fludex: a. Materials purchased, 13,000 ounces at a cost of $244,400. b. There was no beginning inventory of materials; however, at the end of the month, 3,300 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 150 hours at an average rate of $14.00 per hour. d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $6,500. e. During November, 3,600 good units of Fludex were produced .

Answer 1

Complete table :

                                      Standard                   Standard                    Standard

                                        Quantity                 Price(or rate)                  Cost

Direct Materials            2.60 ounces         $20.00 per ounce          $ 52.00

Direct labor                    0.60 hours            $16.00 per hours              9.60

Variable manuf               0.60 hours           $4.50 per hour                  2.70

-acturing Overhead

Total standard cost per unit                                                                    $64.30

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 23 technicians employed in the production of Fludex consists of 4 senior technicians and 19 assistants. During November, the company experimented with fewer senior technicians and more assistants to reduce labor costs, would you recommend that the new labor mix be continued?

3) compute the variable overhead rate and efficiency variances                

Answer:

Check below for answer

Explanation:

1a) Standard quantity of material for actual production(SQ) = 3600*2.60 = 9360 ounce

Actual quantity of material purchased = 13000 ounce

Actual quantity of material used(AQ) = 13000 - 3300 = 9700 ounce

Standard price of material(SP) = $20 per ounce

Actual price of material(AP) = $244,400 / 13000 = $18.80

 Material price variance = (SP - AP) * AQ purchased = ($20 - $18.80) * 13000 = $15,600 F

Material quantity variance = (AQ - SQ) * SP = (9700 - 9360) * $20 = $6800 U

2a) Standard hours of direct labor = 3600*0.6 = 2160 hours

Standard rate of direct labor(SR) = $16 per hour

Actual hours of direct labor(AH) = 20*150 = 3000 hours

Actual rate of direct labor(AR) = $14 per hour

Direct labor rate variance = (SR - AR) * AH = ($16 - $14) * 3000 = $7,000 F

Direct labor efficiency variance = (AH - SH) * SR = (3000 - 2160) * $16 = $13,440U

2b) If more assistants rather senior technicians are employed,  favorable direct labor rate variance will improve but  efficiency variance will be unfavorable. Since unfavorable efficiency variance is higher than favorable rate variance, the new labor mix should not be continued.

3)  Standard hours of direct labor = 2160 hours  

Standard rate of variable overhead= $4.50 per hour

Actual hours of direct labor = 3000

Actual rate of variable overhead = $6500 / 3000 = $2.17 per hour

Variable overhead rate variance = (SR - AR) * AH = ($4.50 - $2.17) * 3000 = 6990 F

Variable overhead efficiency variance = (SH - AH) * SR = (2160 - 3000) * $4.50 = $186.67 U