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
