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: Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit Standard Quantity or Hours 2.50 ounces 0.70 hours 0.70 hours Standard Price or Rate $19.00 per ounce $15.00 per hour $ 4.00 per hour Standard Cost $47.50 10.50 2.80 $60.80 During November, the following activity was recorded related to the production of Fludex: a. Materials purchased, 12,500 ounces at a cost of $223,125. b. There was no beginning inventory of materials; however, at the end of the month, 3,250 ounces of material remained in ending inventory. c. The company employs 21 lab technicians to work on the production of Fludex. During November, they each worked an average of 150 hours at an average pay rate of $12.50 per hour. d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $5,100. e. During November, the company produced 3,500 units of Fludex.

Answer 1

(1)

(A)

Material price variance = actual quantity purchased x (standard price - actual price)

= 12500 x ($19 - $17.85)

= $14375 Favorable

Where,

Actual price = material cost paid/units of material purchased

= $223125/12500 = $17.85

(B)

Material quantity variance = standard price x (standard quantity - actual quantity used)

= $19 x {8750 - (12500 - 3250)}

= $9500 Unfavorable

Where,

Standard quantity = actual output x standard quantity per unit of output

= 3500 x 2.50 = 8750 ounces

(2)

(A)

Labor rate variance = actual hours x (standard rate - actual rate)

= (21 x 150) x ($15 - $12.50)

= $7875 Favorable

(B)

Labor efficiency variance = standard rate x (standard hours - actual hours)

= $15 x (2450 - 3150)

= $10500 Unfavorable

Where,

Standard hours = actual output x standard hours per unit of output

= 3500 x 0.70 = 2450 hours

(3)

(A)

Variable overhead rate variance = actual hours x (standard rate - actual rate)

= (21 x 150) x ($4 - $1.62)

= $7497 Favorable

Where,

Actual rate = actual variable overhead/actual hours

= $5100/3150 = $1.62

(B)

Variable overhead efficiency variance = standard rate x (standard hours - actual hours)

= $4 x (2450 - 3150)

= $2800 Unfavorable

Where,

Standard hours = actual output x standard hours per unit of output

= 3500 x 0.70 = 2450 hours