ecton Labs, Inc., produces various chemical compounds forindustrial use. One compound, called Fludex, is prepared using anelaborate distilling process. The company has developed standardcosts for one unit of Fludex, as follows:
| Standard Quantity
or Hours | Standard Price
or Rate | Standard Cost |
| Direct materials | 2.10 | ounces | $ | 22.00 | per ounce | $ | 46.20 |
| Direct labor | 0.80 | hours | $ | 15.00 | per hour | | 12.00 |
| Variable manufacturing overhead | 0.80 | hours | $ | 2.50 | per hour | | 2.00 |
| Total standard cost per unit | | | | | | $ | 60.20 |
|
During November, the following activity was recorded related tothe production of Fludex:
- Materials purchased, 10,500 ounces at a cost of $216,825.
There was no beginning inventory of materials; however, at theend of the month, 2,600 ounces of material remained in endinginventory.
The company employs 20 lab technicians to work on the productionof Fludex. During November, they each worked an average of 180hours at an average pay rate of $14.00 per hour.
Variable manufacturing overhead is assigned to Fludex on thebasis of direct labor-hours. Variable manufacturing overhead costsduring November totaled $7,000.
During November, the company produced 3,700 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 isanxious to enter into a long-term purchase contract. Would yourecommend that the company sign the contract?
2. For direct labor:
a. Compute the rate and efficiency variances.
b. In the past, the 20 technicians employed in the production ofFludex consisted of 8 senior technicians and 12 assistants. DuringNovember, the company experimented with fewer senior techniciansand more assistants in order to reduce labor costs. Would yourecommend that the new labor mix be continued?
3. Compute the variable overhead rate and efficiencyvariances.
1) For direct materials, compute the price and quantityvariances. (Indicate the effect of each variance by selecting "F"for favorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance). Input all amounts as positive values.)
Materials quantity variance=? and U or F
Materials price Variance=? and U or F
2) For direct materials, the materials were purchased from a newsupplier who is anxious to enter into a long-term purchasecontract. Would you recommend that the company sign thecontract?
yes or no
3) For direct labor, compute the rate and efficiency variances.(Indicate the effect of each variance by selecting "F" forfavorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance). Input all amounts as positive values.)
Labor efficiency variance=? and U or F
Labor rate variance= ? and U or F
4) In the past, the 20 technicians employed in the production ofFludex consisted of 8 senior technicians and 12 assistants. DuringNovember, the company experimented with fewer senior techniciansand more assistants in order to reduce labor costs. Would yourecommend that the new labor mix be continued?
yes or no
5) Compute the variable overhead rate and efficiency variances.(Indicate the effect of each variance by selecting "F" forfavorable, "U" for unfavorable, and "None" for no effect (i.e.,zero variance). Input all amounts as positive values.)
Variable overhead rate variance=? and F or U
Variable overhead effiency variance=? and F or U
