Becton Labs, Inc., produces various chemical compounds for industrial use. One c
ID: 2481577 • 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:
There was no beginning inventory of materials; however, at the end of the month, 2,800 ounces of material remained in ending inventory.
The company employs 21 lab technicians to work on the production of Fludex. During November, they worked an average of 150 hours at an average rate of $12.00 per hour.
Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $4,200.
Compute the price and quantity variances. (Round your "price per ounce" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Compute the rate and efficiency variances. (Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
In the past, the 21 technicians employed in the production of Fludex consisted of 4 senior technicians and 17 assistants. During November, the company experimented with fewer senior technicians and more assistants in order to save costs. Would you recommend that the new labor mix be continued?
Compute the variable overhead rate and efficiency variances. (Round your "rate per hour" answers to 2 decimal places. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Standard Quantity Standard Price
or Rate Standard Cost Direct materials 2.30 ounces $ 26.00 per ounce $ 59.80 Direct labor 0.50 hours $ 14.00 per hour 7.00 Variable manufacturing overhead 0.50 hours $ 3.40 per hour 1.70 $ 68.50
Explanation / Answer
1
Calculation of Material Price Variance :
Formula :
Material Price Variance = (Actual Price - Standard Price ) * Actual Quantity
Actual Price = Actual Cost / Materials purchased
= $305635 / 12500
$ 24.45
Per Ounce
Standard Price =
$ 26.00
Per Ounce
Actual Quantity =
12500
Ounce
Material Price Variance = (24.45 - 26 )*12500 =
$ 19,375
F
2
Calculation of Material Quantity Variance :
Formula :
Material Quantity Variance = (Actual Quantity - Standard Quantity ) * Standard Price
Actual Quantity = 12500 - 2800 =
9700
Ounce
Standard Quantity = (4200 Units * 2.30 Ounces)
9660
Ounce
Standard Price =
$ 26.00
Per Ounce
Material Quantity Variance = (9700-9660)*26 =
$ 1,040
U
3
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?
We would not recommed the company to sign the contract because Material price variance is Unfavorable $19375.
4
Calculation of Labor Rate Variance :
Formula :
Labor rate Variance = (Actual rate - Standard rate ) * Actual hours
Actual rate =
$12
Per Hour
Standard Rate =
$14
Per Hour
Actual Hours = 21 lab technicians*150 hours =
3150
Hours
Labor Rate Variance = (12-16 )*3150 =
12600
F
5
Calculation of Labor efficiency Variance :
Formula :
Labor efficiency Variance = (Actual Hours - Standard hours )* Standard Rate
Actual Hours = 21 lab technicians*150 hours =
3150
Hours
Standard Hours = 4200 Units * 0.50 Hours =
2100
Hours
Standard Rate =
$14
Per Hour
Labor efficiency Variance = (3150-2100)*14 =
14700
U
1
Calculation of Material Price Variance :
Formula :
Material Price Variance = (Actual Price - Standard Price ) * Actual Quantity
Actual Price = Actual Cost / Materials purchased
= $305635 / 12500
$ 24.45
Per Ounce
Standard Price =
$ 26.00
Per Ounce
Actual Quantity =
12500
Ounce
Material Price Variance = (24.45 - 26 )*12500 =
$ 19,375
F
2
Calculation of Material Quantity Variance :
Formula :
Material Quantity Variance = (Actual Quantity - Standard Quantity ) * Standard Price
Actual Quantity = 12500 - 2800 =
9700
Ounce
Standard Quantity = (4200 Units * 2.30 Ounces)
9660
Ounce
Standard Price =
$ 26.00
Per Ounce
Material Quantity Variance = (9700-9660)*26 =
$ 1,040
U
3
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?
We would not recommed the company to sign the contract because Material price variance is Unfavorable $19375.
4
Calculation of Labor Rate Variance :
Formula :
Labor rate Variance = (Actual rate - Standard rate ) * Actual hours
Actual rate =
$12
Per Hour
Standard Rate =
$14
Per Hour
Actual Hours = 21 lab technicians*150 hours =
3150
Hours
Labor Rate Variance = (12-16 )*3150 =
12600
F
5
Calculation of Labor efficiency Variance :
Formula :
Labor efficiency Variance = (Actual Hours - Standard hours )* Standard Rate
Actual Hours = 21 lab technicians*150 hours =
3150
Hours
Standard Hours = 4200 Units * 0.50 Hours =
2100
Hours
Standard Rate =
$14
Per Hour
Labor efficiency Variance = (3150-2100)*14 =
14700
U
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