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 $20.00 per ounce $12.50 per hour $ 3.50 per hour Standaro Standard Quantity Cost Direct materials Direct labor Variable manufacturing overhead 2.5 ounces 1.4 hours 1.4 hours $50.00 17.50 4.90 $72.40 During November, the following activity was recorded relative to production of Fludex: a. Materials purchased, 12,000 ounces at a cost of $225,000 b. There was no beginning inventory of materials; however, at the end of the month, 2,500 ounces of material remained in ending inventory. c. The company employs 35 lab technicians to work on the production of Fludex. During November, they worked an average of 160 hours at an average rate of $12 per hour. d.Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $18,200 e. During November, 3,750 good units of Fludex were produced Required: 1. For direct materials: a. Compute the price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (1.e, zero variance).) Materials price variance Materials quantity variance

Explanation / Answer

1. For direct materials:

Actual rate per unit of material= actual total cost/ unts purchased= 225000/12000= 18.75

Calculation of variances:

b. Since the price variance is favourable it is good to sign the contract.

For direct labor:

The labor efficiency variacne is not favourable as well the total cost variance, hence new mix not recommonded

Overhead variances:

Actual output 3700 Standard units per unit of output 2.5 Standard fertilisers for total clients 9250

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