Accounting problem on Basic variance analysis: Becton lab produces various chemical compounds for industrial use.

One compound, called fludex is prepared using an elaborate distilling process. the company has developed standard cost for one unit of fludex as follow: check figure (1a) material price variance $15,000 f; (2a)labor efficiency variance $4,375 u standard quantity standard price standard cost Direct materials 2.5 ounces 20.00 per ounce 50.00 Direct labor 1.4 hours 12.50 per hour 17.50 Variable manufacturing overhead 1.4 hours 3.50 per hour 4.90 72.40 During nov the following activity recorded relative to 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 employed 35 lab technicians to work on the production of fludex. During November they worked an average of 160 hours at an rate of 12 per hour. d.variable manufacting overhead is assigned to fludex on the basics of direct labor-hours. variable manufacturing overhead cost during November totaled 18,200 e. during November 3,750 good units of fludex were produced. 1. for direct materials used in the production of fludex: a. compare the price and quantity variances. 2. for direct labor employed in the production of fludex Compute the rate and efficiency 3. Compute the variable overhead and efficiency variances Solution: 1) Actual quantity = $225,000 12,000 ounces = $18.75 per ounce Standard quantity = 3,750 units 2.5 ounces per unit = 9,375 ounces Materials price variance = AQ (AP SP) = 12,000 ounces ($18.75 per ounce $20.00 per ounce) = $15,000 F

Materials quantity variance = SP (AQ SQ) = $20.00 per ounce (9,500 ounces 9,375 ounces) = $2,500 U

2) Actual hours = 35 technicians 160 hours per technician = 5,600 hours Standard hours = 3,750 units 1.4 hours per unit = 5,250 hours Labor rate variance = AH (AR SR) = 5,600 hours ($12.00 per hour $12.50 per hour) = $2,800 F Labor efficiency variance = SR (AH SH) = $12.50 per hour (5,600 hours 5,250 hours) = $4,375 U

3) Actual hours = 35 technicians 160 hours per technician = 5,600 hours Actual rate = Variable manufacturing overhead/ Actual hours = $18,200 5,600 hours = $3.25 per hour Standard hours = 3,750 units 1.4 hours per unit = 5,250 hours

Variable overhead variances = AH*(AR SR) = 5,600 hours = $1400F Variable overhead efficiency variance = SR (AH SH) = $3.50 per hour (5,600 hours 5,250 hours) = $1,225 U

($3.25 per hour $3.50 per hour)

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