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 2.50 ounces $ 28.00 per ounce $ 70.00 Direct labor 0.50 hours $ 13.00 per hour 6.50 Variable manufacturing overhead 0.50 hours $ 3.60 per hour 1.80 Total standard cost per unit $ 78.30 During November, the following activity was recorded related to the production of Fludex: Materials purchased, 13,500 ounces at a cost of $361,800. There was no beginning inventory of materials; however, at the end of the month, 2,900 ounces of material remained in ending inventory. The company employs 21 lab technicians to work on the production of Fludex. During November, they each worked an average of 140 hours at an average pay rate of $11.50 per hour. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $4,400. During November, the company produced 4,200 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? 2. For direct labor: a. Compute the rate and efficiency variances. b. In the past, the 21 technicians employed in the production of Fludex consisted of 3 senior technicians and 18 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? 3. Compute the variable overhead rate and efficiency variances
Process Costing
Process costing is a sort of operation costing which is employed to determine the value of a product at each process or stage of producing process, applicable where goods produced from a series of continuous operations or procedure.
Job Costing
Job costing is adhesive costs of each and every job involved in the production processes. It is an accounting measure. It is a method which determines the cost of specific jobs, which are performed according to the consumer’s specifications. Job costing is possible only in businesses where the production is done as per the customer’s requirement. For example, some customers order to manufacture furniture as per their needs.
ABC Costing
Cost Accounting is a form of managerial accounting that helps the company in assessing the total variable cost so as to compute the cost of production. Cost accounting is generally used by the management so as to ensure better decision-making. In comparison to financial accounting, cost accounting has to follow a set standard ad can be used flexibly by the management as per their needs. The types of Cost Accounting include – Lean Accounting, Standard Costing, Marginal Costing and Activity Based Costing.
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 | 2.50 | ounces | $ | 28.00 | per ounce | $ | 70.00 |
| Direct labor | 0.50 | hours | $ | 13.00 | per hour | 6.50 | |
| Variable manufacturing |
0.50 | hours | $ | 3.60 | per hour | 1.80 | |
| Total standard cost per unit | $ | 78.30 | |||||
During November, the following activity was recorded related to the production of Fludex:
- Materials purchased, 13,500 ounces at a cost of $361,800.
-
There was no beginning inventory of materials; however, at the end of the month, 2,900 ounces of material remained in ending inventory.
-
The company employs 21 lab technicians to work on the production of Fludex. During November, they each worked an average of 140 hours at an average pay rate of $11.50 per hour.
-
Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable
manufacturing overhead costs during November totaled $4,400. -
During November, the company produced 4,200 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?
2. For direct labor:
a. Compute the rate and efficiency variances.
b. In the past, the 21 technicians employed in the production of Fludex consisted of 3 senior technicians and 18 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?
3. Compute the variable overhead rate and efficiency variances.
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