Becton Labs, Inc., produces various chemical compounds forindustrial use. One compound, called Fludex, is prepared using anelaborate distilling process. The company has developed standardcosts for one unit of Fludex, as follows: Standard Quantity orHours Standard Price or Rate Standard Cost Direct materials 2.00ounces $ 21.00 per ounce $ 42.00 Direct labor 0.90 hours $ 12.00per hour 10.80 Variable manufacturing overhead 0.90 hours $ 2.00per hour 1.80 Total standard cost per unit $ 54.60
During November, the following activity was recorded related tothe production of Fludex:
- Materials purchased, 10,000 ounces at a cost of $197,000.
There was no beginning inventory of materials; however, at theend of the month, 2,550 ounces of material remained in endinginventory.
The company employs 24 lab technicians to work on the productionof Fludex. During November, they each worked an average of 170hours at an average pay rate of $11.50 per hour.
Variable manufacturing overhead is assigned to Fludex on thebasis of direct labor-hours. Variable manufacturing overhead costsduring November totaled $4,800.
During November, the company produced 3,700 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 isanxious to enter into a long-term purchase contract. Would yourecommend that the company sign the contract?
2. For direct labor:
a. Compute the rate and efficiency variances.
b. In the past, the 24 technicians employed in the production ofFludex consisted of 6 senior technicians and 18 assistants. DuringNovember, the company experimented with fewer senior techniciansand more assistants in order to reduce labor costs. Would yourecommend that the new labor mix be continued?
3. Compute the variable overhead rate and efficiencyvariances.
