Chp. 10 Problem: Variance Analysis Cullen Manufacturing produces various chemical compounds for industrial use. One compound, called Vamdux, is prepared using an elaborate distilling process. The company has developed the following standard costs for one unit of Vamdux. Standard Quantity Standard Rate or Price Standard Cost Direct Materials 2.5 ounces $20.00 per ounce $50.00 Direct Labor 1.4 hours $22.50 per hour 31.50 Variable manufacturing overhead 1.4 hours $3.50 per hour 4.90 Total standard cost per unit $86.40 During November, the following activity was recorded related to the production of Vamdux: 2 a) Materials purchased, 12,000 ounces at a cost of $225,000 Ob) There was no beginning inventory of materials; however, at the end of the month, 2,500 ounces of material remained in ending inventory Le The company employs 35 lab technicians to work on production of Vamdux. During November, 18.757 they each worked an average of 160 hours. Labor for November totaled $123,200. arVariable manufacturing overhead is allocated to Vamdux on the basis of direct labor hours. Variable manufacturing overhead costs during November totaled $18,200. e) During November, the company produced 3,750 units of Vamdux. 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 contract. Would you recommend that the company sign the contract? Explain. 2. For direct labor: a. Compute the rate and efficiency variances. b. In the past, the 35 technicians employed in the production of Vamdux consisted of 20 senior technicians and 15 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? Explain. 3. Compute the variable manufacturing overhead rate and efficiency variances. What relation can you see between this variance and the labor efficiency variance