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 2.00 ounces $ 21.00 per ounce $ 42.00 Direct labor 0.90 hours $ 12.00 per hour 10.80 Variable manufacturing overhead 0.90 hours $ 2.00 per hour 1.80 Total standard cost per unit $ 54.60 During November, the following activity was recorded related to the production of Fludex: Materials purchased, 10,000 ounces at a cost of $197,000. There was no beginning inventory of materials; however, at the end of the month, 2,550 ounces of material remained in ending inventory. The company employs 24 lab technicians to work on the production of Fludex. During November, they each worked an average of 170 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 $4,800. 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 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 24 technicians employed in the production of Fludex consisted of 6 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. Compute the variable overhead rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
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 Quantity or Hours |
Standard Price or Rate |
Standard Cost | |||||
Direct materials | 2.00 | ounces | $ | 21.00 | per ounce | $ | 42.00 |
Direct labor | 0.90 | hours | $ | 12.00 | per hour | 10.80 | |
Variable manufacturing |
0.90 | hours | $ | 2.00 | per hour | 1.80 | |
Total standard cost per unit | $ | 54.60 | |||||
During November, the following activity was recorded related to the production of Fludex:
- Materials purchased, 10,000 ounces at a cost of $197,000.
-
There was no beginning inventory of materials; however, at the end of the month, 2,550 ounces of material remained in ending inventory.
-
The company employs 24 lab technicians to work on the production of Fludex. During November, they each worked an average of 170 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 $4,800. -
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 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 24 technicians employed in the production of Fludex consisted of 6 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.
Compute the variable overhead rate and efficiency variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)
![](/static/compass_v2/shared-icons/check-mark.png)
Variance: It is the computation of the differences between the standards and the actual rate, actual quantity/hours, etc. for direct materials, direct labor, variable overheads, etc.
Trending now
This is a popular solution!
Step by step
Solved in 2 steps with 3 images
![Blurred answer](/static/compass_v2/solution-images/blurred-answer.jpg)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![FINANCIAL ACCOUNTING](https://compass-isbn-assets.s3.amazonaws.com/isbn_cover_images/9781259964947/9781259964947_smallCoverImage.jpg)
![Accounting](https://www.bartleby.com/isbn_cover_images/9781337272094/9781337272094_smallCoverImage.gif)
![Accounting Information Systems](https://www.bartleby.com/isbn_cover_images/9781337619202/9781337619202_smallCoverImage.gif)
![Horngren's Cost Accounting: A Managerial Emphasis…](https://www.bartleby.com/isbn_cover_images/9780134475585/9780134475585_smallCoverImage.gif)
![Intermediate Accounting](https://www.bartleby.com/isbn_cover_images/9781259722660/9781259722660_smallCoverImage.gif)
![Financial and Managerial Accounting](https://www.bartleby.com/isbn_cover_images/9781259726705/9781259726705_smallCoverImage.gif)