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.

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?

Answer 1

23.00 Per ounce 2.2 Ounces 8800 Ounces 4000 Units 12000 lounces 8900 Ounces 21.65 Per ounce | Data Direct Material Standard Price SP Standard quantity Per unit | Standard Quantity for Actual Output SQ Actual Output Actual Quantity Purchased AQP Actual Quanity Used =(12000-3100) AQ Actual Price of Material (259800/12000)| AP Direct Labor Standard Rate SR Standard hours per unit Standard Hours for Actual output Actual Output Actual hours Worked =25*130 AH Actual Rate AR Varaible OH Standard Rate SR Standard hours per unit Standard Hours for Actual output Actual Output Actual hours Worked =25*130 AH Actual rate =4200/3250 AR SH 14 Per hour 0.6 hours 2400 Hours 4000 Units 3250 hours 12.00 Per hour SH 2.50 Per hour 0.60 hours 2400 Hours 4000 Units 3250 hours 1.29 Per hour

16200 F Answer Mateial Price Variance (AQ*AP)-(AQ*SP) Matrial Quanity Varaince (AQ*SP)-(SQ*SP) would you recommand the sing the Contract 2300 YES