Problem $10-14($Algo$)$ Basic Variance Analysis $[$LO$10-1,$ LO$10-2,$ LO$10-3]$

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:

During November, the following activity was recorded related to the production of Fludex:

a$.$ Materials purchased, $12,000$ ounces at a cost of $$198,000.$

$.$ There was no beginning inventory of materials; however, at the end of the month, $3,200$ ounces of material

remained in ending inventory.

c$.$ The company employs $20$ lab technicians to work on the production of Fludex. During November, they each

worked an average of $160$ hours at an average pay rate of $$12\mathrm{.}00$ per hour.

d$.$ Variable manufacturing overhead is assigned to Fludex on the basis of direct labor$-$hours. Variable manufacturing

overhead costs during November totaled $$4,800.$

e$.$ During November, the company produced $3,600$ units of Fludex.

Required:

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?

For direct labor:

a$.$ Compute the rate and efficiency variances.

b$.$ In the past, the $20$ technicians employed in the production of Fludex consisted of $5$ 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?

Compute the variable overhead rate and efficiency variances.