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Becton Labs, Inc., 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:
Becton Labs, Inc., 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 Standard Price Standard Cost
or Hours or Rate
Direct materials 2.60 ounces $20.00 per ounce $52.00
Direct labor 0.60 hours $16.00 per hour 9.60
Variable manufacturing-
overhead 0.60 hours $4.50 per hour 2.70
$64.30
During November, the following activity was recorded relative to production of Fludex:
a. Materials purchased 13,000 ounces at a cost of $244,400.
b. There was no beginning inventory of materials; however, at the end of the month, 3,300 ounces of material remained in ending inventory.
c. The company employs 20 lab technicians to work on the production of Fludex. During November, they worked an average of 150 hours at an average rate of $14.00 per hour.
d. Variable manufacturing overhead is assigned to Fludex on the basis of direct labor-hours. Variable manufacturing overhead costs during November totaled $6,500.
e. During November, 3,600 good units of Fludex were produced.
Required:
1. For direct materials:
1.a) Compute the price and quantity variances. (Input all amounts as positive values. Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e, zero variance).)
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?
Final answer:To calculate the direct materialsvariances, one must compare the standard cost to the actual cost incurred. The material price variance was calculated to be a favorable $15,600, while the material quantity variance was calculated to be an unfavorable $6,800. Recommendations for a long-term supplier contract would require additional information beyond the computed variances.Explanation:Direct Materials Variance CalculationThe quantity and price variances for the direct materials used by Becton Labs, Inc. to produce Fludex can be computed as follows:Thestandard costfor materials is $20.00 per ounce, and theactual costpaid was $244,400 for 13,000 ounces, resulting in anactual cost per ounceof $244,400 / 13,000 = $18.80.Thematerial price varianceis calculated by comparing the standard cost with the actual cost: (Standard Price - Actual Price) x Actual Quantity = ($20.00 - $18.80) x 13,000 = $15,600. Since the actual price islessthan the standard, this is aFavorable variance(F).Thematerial quantity varianceis found by comparing the standard quantity with the actual quantity used: (Standard Quantity - Actual Quantity Used) x Standard Price = (2.60 oz/unit x 3,600 units - (13,000 oz - 3,300 oz)) x $20.00 = ($9,360 - $9,700) x $20.00 = -$6,800. Since the actual quantity used ismorethan the standard, this is anUnfavorable variance(U).As to the recommendation for the long-term contract with the new supplier, this decision would depend on factors beyond the variances calculated, such as quality of materials, reliability of the supplier, and overall cost savings. If the materials meet quality standards and the supplier is reliable, the lower price could lead to cost savings, but this must be carefully weighed against other considerations.Learn more about Direct Materials Variance here:brainly.com/question/33825157#SPJ3...