Becton Labs, Inc., produces various chemical compounds for industrial use. One c

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 Price Standard Standard Quantity Cost or Rate 27.00 per ounce Direct materials Direct labor Variable manufacturing overhead 2.40 ounces 0.60 hours 0.60 hours 0 7.20 $ 3.50 per hour210 $74.10 $64.8 $12.00 per hour During November, the following activity was recorded relative to production of Fludex: a. Materials purchased, 13,000 ounces at a cost of $330,200 b. There was no beginning inventory of materials; however, at the end of the month, 2,850 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 160 hours at an average rate of $11.00 per hour. d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $6,000. e. During November, 4,200 good units of Fludex were produced Required 1. For direct materials: a. Compute the price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero varianco).) Materials price variance Materials quantity variance

Explanation / Answer

(1a)

Material Price Variance

20800(F)

Material Quantity Variance

78840(U)

Material Price Variance = (SR – AR) * Actual Qty

    SR = $ 27

    AR = 330200/13000 = $ 25.4

    AQ = 13000 ounces

= (27 – 25.4) * 13000 = 20800 (F)

Material Quantity Variance = (SQ – AQ) * SR

SQ = 4200 * 2.4 = 10080 ounces

=(10080 – 13000) * 27 = 78840 (U)

(1b) Yes, due to Favourable Material price variance , there is need to sign the contract

(2a)

Labour Rate Variance

3200 (F)

Labour Efficiency Variance

8160 (U)

Labour Rate Variance = (SR – AR) * Actual Hrs

    SR = $ 12

    AR = $11

    A Hrs = 160 * 20 = 3200 hrs

= (12 - 11) * 3200 = 3200 (F)

Labour Efficiency Variance = (S Hrs – A Hrs) * SR

S Hrs = 4200 * 0.60 = 2520 hrs

=(2520 - 3200) * 12 = 8160 (U)

(2b) No due to Unfavouralble Efficiency variance, the new labour mix would not be continued

(3)

Variable O/H Rate Variance

5200 (F)

Variable O/H Efficiency Variance

2380 (U)

V. O/H Rate Variance = (SR – AR) * Actual Hrs

    SR = $ 3.50

    AR = $6000/3200 hrs = $ 1.875

= (3.5 – 1.875) * 3200 = 5200 (F)

V. O/H Efficiency Variance = (S Hrs – A Hrs) * SR

S Hrs = 4200 * 0.60 = 2520 hrs

=(2520 - 3200) * 3.50 = 2380 (U)

Material Price Variance

20800(F)

Material Quantity Variance

78840(U)

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