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 PriceStandard Standard Quantity or Rate Direct materials Direct labor Variable manufacturing overhead 2.30 ounces 0.60 hoursS 0.60 hours Cost $17.00 per ounce $39.10 .80 1.50 $48.40 $13.00 per hour $ 2.50 per hour During November, the following activity was recorded relative to production of Fludex: a. Materials purchased, 11,500 ounces at a cost of $178,825 b. There was no beginning inventory of materials; however, at the end of the month, 3,150 ounces of material remained in ending inventory c. The company employs 17 lab technicians to work on the production of Fludex. During November, they worked an average of 160 hours at an average rate of $11.50 per hour d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor hours. Variable manufacturing overhead costs during November totaled $3,000 e. During November, 3,500 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 (i.e, zero variance).) Materials price variance Materials quantity variance 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? Yes No 2. For direct labor: a. Compute the rate and efficiency 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 (i.e, zero variance).) Labor rate variance Labor efficiency variance b. In the past, the 17 technicians employed in the production of Fludex consisted of 4 senior technicians and 13 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? O Yes No 3. Compute the variable overhead rate and efficiency 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 (i.e, zero variance).) Variable overhead rate variance Variable overhead efficiency variance

Explanation / Answer

Becton Labs 1 a. Material Standard quanity*Standard price Actual quanity*Standard Price Actual Quantity*Actual price =3500*2.3*17 =(11500-3150)*17 178825 136850 141950 178825 Material quanity Variance Material Price Variance =136850-141950 =141950-178825 -5100 Unfavourable -36875 Unfavourable b. No. We will not recommend the company signing the contract. Since variances are unfavourable 2 Labor a. Standard quanity*Standard rate Actual quanity*Standard rate Actual Quantity*Actual rate =3500*0.6*13 =17*160*13 =17*160*11.5 27300 35360 31280 Labor efficiency Variance Labor Rate variance =27300-35360 =35360-31280 -8060 Unfavorable 4080 Favourable b. No. New labor mix should not be continued, as Efficiency and total labor cost variance are unfavourable 3 Variable Overhead Standard quanity*Standard rate Actual quanity*Standard rate Actual Quantity*Actual rate =3500*0.6*2.5 =17*160*2.5 3000 5250 6800 given Variable Overhead efficiency Variance Variable Overhead Rate variance =5250-6800 =6800-3000 -1550 Unfavorable 3800 Favourable We appreciate, if you rate our answers. Thank You

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