Becton Labs, Inc., produces various chemical compounds for industrial use. One c
ID: 2403631 • Letter: B
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:
During November, the following activity was recorded related to the production of Fludex:
Materials purchased, 10,500 ounces at a cost of $216,825.
There was no beginning inventory of materials; however, at the end of the month, 2,600 ounces of material remained in ending inventory.
The company employs 20 lab technicians to work on the production of Fludex. During November, they each worked an average of 180 hours at an average pay rate of $14.00 per hour.
Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $7,000.
During November, the company produced 3,700 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 20 technicians employed in the production of Fludex consisted of 8 senior technicians and 12 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.
Standard Quantityor Hours Standard Price
or Rate Standard Cost Direct materials 2.10 ounces $ 22.00 per ounce $ 46.20 Direct labor 0.80 hours $ 15.00 per hour 12.00 Variable manufacturing overhead 0.80 hours $ 2.50 per hour 2.00 Total standard cost per unit $ 60.20
Explanation / Answer
Answers
Actual DATA for
3700
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
7900 [10500 – 2600]
$ 20.65 [216825 / 10500]
$ 163,135.00
Direct labor
3600 [20 x 180]
$ 14.00
$ 50,400.00
Variable Overhead
3600
$ 1.94
$ 7,000.00
Standard DATA for
3700
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
7770 [3700 x 2.1]
$ 22.00
$ 170,940.00
Direct labor
2960 [3700 x 0.8]
$ 15.00
$ 44,400.00
Variable Overhead
2960
$ 2.50
$ 7,400.00
Answer ‘a’
Material Price Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Quantity
(
$ 22.00
-
$ 20.65
)
x
7900
10665
Variance
$ 10,665.00
Favourable-F
Material Quantity Variance
(
Standard Quantity
-
Actual Quantity
)
x
Standard Rate
(
7770
-
7900
)
x
$ 22.00
-2860
Variance
$ 2,860.00
Unfavourable-U
Answer ‘b’
YES, because the actual rate of material is Lower than the Standard rate (of $22 per pound)
Answer ‘a’
Labor Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 15.00
-
$ 14.00
)
x
3600
3600
Variance
$ 3,600.00
Favourable-F
Labour Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
2960
-
3600
)
x
$ 15.00
-9600
Variance
$ 9,600.00
Unfavourable-U
Answer ‘b’
NO, because using more assistant in November has led to fall in efficiency of labor force (hence unfavourable efficiency variance).
The new labor mix SHOULD NOT BE CONTINUED.
Variable Overhead Rate Variance
(
Standard Rate
-
Actual Rate
)
x
Actual Labor Hours
(
$ 2.50
-
$ 1.94
)
x
3600
2000
Variance
$ 2,000.00
Favourable-F
Variable Overhead Efficiency Variance
(
Standard Hours
-
Actual Hours
)
x
Standard Rate
(
2960
-
3600
)
x
$ 2.50
-1600
Variance
$ 1,600.00
Unfavourable-U
Actual DATA for
3700
units
Quantity (AQ)
Rate (AR)
Actual Cost
Direct Material
7900 [10500 – 2600]
$ 20.65 [216825 / 10500]
$ 163,135.00
Direct labor
3600 [20 x 180]
$ 14.00
$ 50,400.00
Variable Overhead
3600
$ 1.94
$ 7,000.00
Standard DATA for
3700
units
Quantity (SQ)
Rate (SR)
Standard Cost
Direct Material
7770 [3700 x 2.1]
$ 22.00
$ 170,940.00
Direct labor
2960 [3700 x 0.8]
$ 15.00
$ 44,400.00
Variable Overhead
2960
$ 2.50
$ 7,400.00
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