Becton Labs, Incorporated, 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 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 Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit During November, the following activity was recorded related to the production of Fludex: Required: 1. For direct materials: 6.50 1.80 $78.30 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. c. 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. 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, the company produced 4,200 units of Fludex. 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.
Becton Labs, Incorporated, 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 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 Direct materials Direct labor Variable manufacturing overhead Total standard cost per unit During November, the following activity was recorded related to the production of Fludex: Required: 1. For direct materials: 6.50 1.80 $78.30 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. c. 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. 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, the company produced 4,200 units of Fludex. 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.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Becton Labs, Incorporated, 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:
Direct materials
Direct labor
Variable manufacturing overhead
Total standard cost per unit
Standard Quantity or
Hours
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 related to the 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.
c. 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.
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, 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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