Problem 5 Standard Costing and Variance Analysis (20 points)

Becton Labs, Incorporation 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	2.5 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 Fludex:

1. Materials purchased and used in production, 9,500 ounces for $178,125
2. 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
3. Variable Overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $18,200.
4. During November, the company produced 3,750 units of Fludex

Required:

1. Compute the price and quantity variances for direct materials (6 points)
2. 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? Explain (2 points)
3. Compute the direct-labor rate and efficiency variances (6 points)
4. Compute the variable manufacturing overhead rate and efficiency variance (6 points)