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 or Rate $24.00 per ounce $15.00 per hour s 3.50 per hour Standard Quantity or Hours Standard Cost Direct materials Direct labo Variable manufacturing overhead Total standard cost per unit 2.30 ounces 0.80 hours 0.80 hours $55.20 12.00 2.80 $70.00 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 12,500 ounces at a cost of $282,500. b. There was no beginning inventory of materials; however, at the end of the month, 3,000 ounces of material c. The company employs 26 lab technicians to work on the production of Fludex. During November, they each d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing e. During November, the company produced 4,100 units of Fludex. remained in ending inventory worked an average of 150 hours at an average pay rate of $14.00 per hour overhead costs during November totaled $8,000.

Explanation / Answer

1a Direct material Price and Quantity variance A Total Production in units 4100 B=2.3*A Standard quantity of direct materials(ounce) 9430 C Standard Price per ounce $24.00 D Actual quantity of direct materials used(ounce) 9500 (12500-3000) E Actual price of direct materials per ounce $         22.60 (282500/12500) F=C*(B-D) Direct materials quantityvariance $       (1,680) (Unfavourable) G=D*(C-E) Direct materials price variance $13,300 (Favourable) Material Price Variance $13,300 (Favourable) Material Quantity Variance $         1,680 (Unfavourable) 1.b Yes, company should sign the contract. The price is lower than the standard price 2a. Direct labor Rate and Efficiency variance A Total Production in units 4100 B=0.8*A Standard hours of labor 3280 C Standard Rate of direct labor $15.00 D Actual hours of direct labor used 3900 (150*26) E Actual rate of direct labor $         14.00 F=C*(B-D) Direct Labor efficiency variance $       (9,300) Unfavourable G=D*(C-E) Direct labor Rate variance $3,900 Favourable Direct Labor Rate Variance $3,900 Favourable Direct Labor Efficiency   Variance $         9,300 Unfavourable 2b No, the new labor mix has favourable Rate variance , but Unvafourable efficiency variance Overall variance is unfavourable 3 Variable Overhead rate and efficiency variable A Total Production in units 4100 B=0.8*A Standard hours of variable overhead 3280 C Standard Rate of variable overhead $3.50 D Actual hours of variable overhead 3900 (150*26) E Actual rate of variable overhead $            2.05 ($8000/3900) F=C*(B-D) Direct Labor efficiency variance $       (2,170) Unfavourable G=D*(C-E) Direct labor Rate variance $5,650 Favourable Direct Labor Rate Variance $5,650 Favourable Direct Labor Efficiency   Variance $         2,170 Unfavourable

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