Problem 10-14 Basic Variance Analysis [L010-1, LO10-2, LO10-3] Becton Labs, Inc.
ID: 2519235 • Letter: P
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Problem 10-14 Basic Variance Analysis [L010-1, LO10-2, LO10-3] 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: or Hour Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit 2.50 ounces 8.90 hours e.90 hours $22.80 per ounce $16.00 per hour s 2.00 per hour 55.80 14.40 1.80 71.20 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 14,000 ounces at a cost of $289,800 b. There was no beginning inventory of materials; however, at the end of the month, 4,050 ounces of material remained in ending c The company employs 26 lab technicians to work on the production of Fludex. During November, they each worked an average of d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs e. During November, the company produced 3,900 units of Fludex inventory 150 hours at an average pay rate of $15.00 per hour. during November totaled $5,000 1. For direct materials: a. 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 b. In the past, the 26 technicians employed in the production of Fludex consisted of 6 senior technicians and 20 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. Complete this question by entering your answers in the tabs belowExplanation / Answer
Fludex Produced = 3,900 Units Standard Actual SQ / SH SR Total AQ / AH AR Total Direct Material 9,750 22.00 214,500 9,950 20.70 205,965 Direct labor 3,510 16.00 56,160 3,900 15.00 58,500 Variable MOH 3,510 2.00 7,020 3,900 1.28 5,000 Answer 1-a. AQ Used = 14,000 ounces - 4,050 ounces (End. Stock) = 9,950 ounces AR per Ounce = $289,800 / 14,000 = $20.70 per ounce Direct Material Price Variance = (SR - AR) X AQ Purchased Direct Material Price Variance = ($22 - $20.70) X 14,000 Ounces Direct Material Price Variance = $18,200 (F) Direct Material Quantity Variance = (SQ - AQ) X SR Direct Material Quantity Variance = (9,750 ounces - 9,950 Ounces) X $22 Direct Material Quantity Variance = $4,400 (U) Answer 1-b. Positive Feature of Contract: 1. Price of the material is lower than the standard rate (SR - $22 per ounce & AR - $20.70 per Ounce) Negative Feature of Contract: 1. Direct Material Quantity variance is unfavourable. It indicates that the material purchased is of inferior quality. If so, long term contract is not appear to be wise at this time. Answer 2-a. Direct Labor Rate Variance = (SR - AR) X AH Direct Labor Rate Variance = ($16 - $15) X 3,900 Hrs Direct Labor Rate Variance = $3,900 (F) Direct Labor Efficiency Variance = (SH - AH) X SR Direct Labor Efficiency Variance = (3,510 hrs - 3,900 hrs) X $16 Direct Labor Efficiency Variance = $6,240 (U) Answer 2-b. The company should not change the labor mix, since the labor efficiency variance is unfavourable. The overall cost variance is unfavourable and it increases the overall cost of the labor. Answer 3. Variable Overhead Rate Variance = (SR - AR) X AH Variable Overhead Rate Variance = ($2 - $1.28) X 3,900 hrs Variable Overhead Rate Variance = $2,800 (F) Variable Overhead Efficiency Variance = (SH - AH) X SR Variable Overhead Efficiency Variance = (3,510 hrs - 3,900 hrs) X $2 Variable Overhead Efficiency Variance = $780 (U)
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