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 Quantity Standard Price or Rate Standard Cost Direct materials 2.20 ounces $ 16.00 per ounce $ 35.20 Direct labor 0.80 hours $ 12.00 per hour 9.60 Variable manufacturing overhead 0.80 hours $ 2.50 per hour 2.00 $ 46.80 During November, the following activity was recorded relative to production of Fludex: a. Materials purchased, 11,000 ounces at a cost of $160,600. b. There was no beginning inventory of materials; however, at the end of the month, 3,100 ounces of material remained in ending inventory. c. The company employs 23 lab technicians to work on the production of Fludex. During November, they worked an average of 150 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 $4,200. e. During November, 3,500 good units of Fludex were produced .

Explanation / Answer

1. a. Material price variance = Actual Quantity * (Actual Price - Standard Price)

= 11000 * (160600/ 11000- 16) = 15400 (Favorable)

Material quantity variance = ( Standard Quantity Actual Quantity ) × Standard Price

= (7700 - 7900 ) * 16 = 3200 (Unfavorable)

#Quantity variance is calculated on the basis of material used i.e.11000 - 3100

b. Yes, since the actual price is less than standard price. It is profitable to purchase material from this supplier.

2.a. Labour Rate Variance = Actual Hours * (Actual Rate - Standard Rate)

= (23*150) * (11 - 12) = 3450 (Favorable)

Labour Efficiency Variance = (Actual Hours - Standard Hours) * Standard Rate

= (3450 - 2800) * 12 = 7800 (Unfavorable)

b. No, Since it is less efficient. Efficiency variance is unfavorable

3. Variable overhead rate variance = Actual hours worked x (Actual overhead rate - standard overhead rate)

= 3450 * (4200/3450 - 2.50) = 4425 (Favorable)

Variable overhead efficiency variance = Standard overhead rate x (Actual hours - standard hours)

= 2.50 * (3450 - 2800) = 1625 (Unfavorable)

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