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 develope standard costs for one unit of Fludex, as follows: Direct materials Direct labor Variable manufacturing overhead Standard Quantity 2.50 ounces 0.50 hours 0.50 hours Standard Price or Rate $28.00 per ounce $13.00 per hour $ 3.60 per hour Standard Cost $70.00 6.50 1.80 $78.30 During November, the following activity was recorded relative to production of Fludex: a. Materials purchased, 13,500 ounces at a cost of $361,800. b. There was no beginning inventory of materials; however, at the end of the month, 2,900 ounces of material remained in ending inventory. duction of Fludex. During November, they worked an average of 140 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 $4,400. e. During November, 4,200 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

Answer 1

Answers

• Workings

Actual DATA for		4200	units
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	13500	$                26.80	$        361,800.00
Direct labor	2940	$                11.50	$           33,810.00
Variable Overhead	2940	$                   1.50	$             4,400.00

Standard DATA for		4200	units
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 2.5 ounces x 4200 units)=10500 ounces	$                28.00	$     294,000.00
Direct labor	( 0.5 hours x 4200 units)=2100 hours	$                13.00	$       27,300.00
Variable Overhead	( 0.5 hours x 4200 units)=2100 hours	$                   3.60	$         7,560.00

• Requirement 1

Part A

Material Price Variance

$                                                  16,200.00 or [$ 12,720 if qty used is considered]

Favourable-F

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                              28.00	-	$                    26.80	)	x	10600
	12720
	Variance		$            12,720.00			Favourable-F
Material Quantity Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	10500	-	10600	)	x	$                        28.00
	-2800
	Variance		$              2,800.00			Unfavourable-U

Part B

YES, it is recommended because the prices offered by the seller are LESS than the standard price of material.

• Requirement 2

Part A

Labor Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                              13.00	-	$                    11.50	)	x	2940
	4410
	Variance		$              4,410.00			Favourable-F
Labour Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	2100	-	2940	)	x	$                        13.00
	-10920
	Variance		$            10,920.00			Unfavourable-U

Part B

NO, it is not recommended, because this has led to lower efficiencies among workers, as evident by Unfavourable Efficiency Variance, calculated above.

• Requirement 3

Variable Overhead Rate Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Labor Hours
(	$                                3.60	-	$                       1.50	)	x	2940
	6184
	Variance		$              6,184.00			Favourable-F
Variable Overhead Efficiency Variance
(	Standard Hours	-	Actual Hours	)	x	Standard Rate
(	2100	-	2940	)	x	$                           3.60
	-3024
	Variance		$              3,024.00			Unfavourable-U