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 Quantity or Hours		Standard Price or Rate			Standard Cost
Direct materials	2.20	ounces	$	23.00	per ounce	$	50.60
Direct labor	0.60	hours	$	14.00	per hour		8.40
Variable manufacturing overhead	0.60	hours	$	2.50	per hour		1.50
Total standard cost per unit						$	60.50

During November, the following activity was recorded related to the production of Fludex:

1. Materials purchased, 12,000 ounces at a cost of $259,800.

2. There was no beginning inventory of materials; however, at the end of the month, 3,100 ounces of material remained in ending inventory.

3. The company employs 25 lab technicians to work on the production of Fludex. During November, they each worked an average of 130 hours at an average pay rate of $12.00 per hour.

4. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $4,200.

5. During November, the company produced 4,000 units of Fludex.

Required:

1. For direct materials:

a. Compute the price and quantity variances.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

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 or no

2. For direct labor:

a. Compute the rate and efficiency variances.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Labor rate variance
Labor efficiency variance

b. In the past, the 25 technicians employed in the production of Fludex consisted of 4 senior technicians and 21 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? yes or no

3. Compute the variable overhead rate and efficiency variances.

(Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Variable overhead rate variance
Variable overhead efficiency variance

Answer 1

FOLLOWING IS THE SOLUTION