PROBLEM 10-14 Basic Variance Analysis LO10-1, ( LO10-2, LO10-3 Becton Labs, Inc, produces various chemical compounds for industrial use. One compound, called Fludex, is prepared Page 469 using an elaborate distilling process. The company has developed standard costs for one unit of Fladex, as followz: Daring November, the following activity was reconded related to the production of Fudex a. Materials purchased, 12,000 ounces at a cort of $225,000. b. There was no bejinnins inventory of materials; however, at the end of the month, 2,500 ounces of material remained in ending inventory: c. The company employs 35 lab technicians to work on the production of Fludex. Daring November, they each worked an average of 160 hours at an average pay rate of $22 per hoar. 4. Variable manufucturing ovethead is asrigned to Fudex on the basis of direct laborhour! Variable manufacturing ovechead costs daring November totaled $18,200. e. Durint November, the company produced 3,750 units of Fludex. Required: 1. For direct materialy: a. Compute the price and quantity variances b. The materials were parchased from a new supplier who is anxious to enter into a iongerm purchase 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 part, the 35 technicians employed in the production of Fudex contisted of 20 senior technicians and 15 assistants. During: November, the company experimented with ferier senior technicians and more astistants in order to reduce labor conts. Woald jou recommend that the new labor mix be continued? Explain. 3. Compute the variable overheod rate and efficiency variances. What relation can jou see between this efficiency variance and the labor efficiency variancet? PROBLEM 10-14 Basic Variance Analysis (4) LO10-1, (\$) LO10-2, (\$) LO10-3 Becton Labs, Inc, produces various chemical compounds for industrial use. One compound, called Fludex, is prepared Page 489 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 $225,000. b. There was no beginning inventory of materials; however, at the end of the month, 2,500 ounces of material remained in ending inventory: c. The company employs 35 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 $22 per hour. d. Variable manufacturing overhead is atsigned to Fludex on the basis of direct laborhours. Variable manufacturing overhead costs during November totaled $18,200. e. During November, the company produced 3,750 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 eater into a longterm purchase contract. Would jou 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 Fludex 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 jou recommend that the new labor mix be continued? Explain. 3. Compute the variable overhead rate and effciency variances. What relation can you see between this efficiency variance and the labor efticiency variance
