Becton Labs, he, produces various chemical compounds for industrial use. One com

Question

Becton Labs, he, produces various chemical compounds for industrial use. One compound, caled Flude. s prepared using an elaborate distiling process. The company has developed standard costs for one unit of Fludex, as follows: Standard Price Standard $ 39.10 7.80 1.50 $17.00 per ounce Direct materials Direct labor 2 30 ounces 060 hours $13.00 per hour S 2.50 per hour Variable manufacturing overhead0.60 hours $ 48.40 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 c. The company employs 17 lab technicians to work on the production of Fludex. During November, they d.Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable e.During November, 3,500 good units of Fludex were produced material remained in ending inventory worked an average o 160 hours at an average rate of $11.50 per hour manfacturing overhead costs during November totaled $3,000 1. For direct materials: he price and quansty variances. (Iinput all amounts as positive values. Indicate the each variance by selecting "F-for favorable, -for unfavorable, and "None" for no effect (i.e. zero Materials price variance Materials quantity variance b. The materals were purchased from a new supplier who is anxious to enter into a long-term purchase he contract? 0 F3 F5 FT 2 3 4

Explanation / Answer

Answer to Part 1-a:

Material Price Variance = (Standard Price – Actual Price) * Actual Quantity
Actual Price = 178,825 / 11,500 = $15.55
Actual Quantity = 11,500 Ounces
Material Price Variance = (17.00 – 15.55) * 11,500
Material Price Variance = 1.45 * 11,500
Material Price Variance = $16,675 (Favourable)

Material Quantity Variance = (Standard Quantity - Actual Quantity) * Standard Price
Standard Quantity = 3,500 * 2.30 = 8,050 Ounces
Material Quantity Variance = (8,050 – 11,500) * $17
Material Quantity Variance = 58,650 (Unfavourable)

Answer to Part 1 -b:
Yes, the material should be purchased from a new supplier, as the price of Material is less than the Standard Price.

Answer to Part 2-a:

Labor Rate Variance = (Standard Rate – Actual Rate) * Actual Hours
Standard Rate = $13.00
Actual Rate = $11.50
Actual Hours = 17 * 160 = 2,720 Hours
Labor Rate Variance = (13.00 – 11.50) * 2,720
Labor Rate Variance = $4,080 (Favourable)

Labor Efficiency Variance = (Standard Hours – Actual Hours) * Standard Rate
Standard Hours = 3,500 * 0.60 = 2,100
Actual Hours = 2,720
Labor Efficiency Variance = (2,100 – 2,720) * $13
Labor Efficiency Variance = 8,060 (Unfavourable)

Answer to Part 3:

Variable Overhead Rate Variance = (Standard Rate – Actual Rate) * Actual Hours
Actual Hours = 2,720
Standard Rate = $2.50
Actual rate = 3,000 / (160 * 17) = $1.20
Variable Overhead Rate Variance = (2.50 – 1.20) * 2,720
Variable Overhead Rate Variance = 3,536 (Favourable)

Variable Overhead Efficiency Variance = (Standard Hours – Actual Hours) * Standard Rate
Standard Hours = 3,500 * 0.60 = 2,100
Actual Hours = 2,720
Standard Rate = $2.50
Variable Overhead Efficiency Variance = (2,100 – 2,720) * $2.50
Variable Overhead Efficiency Variance = 1,550 (Unfavourable)

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