Question 1

1.a Actual Quantity (AQ) purchased = 12,000 ounces

Actual Price(AP) = $18.75 per ounce
Standard Price (SP) = $ 20 per ounce
Actual Quantity Used = 9,500 ounces
Standart Quantity (SQ) allowed for Actual output = 3,570 units x 2.5 ounces per unit = 9,375 ounces

Materials Price Variance = AQ(SP - AP) = 12,000 x(20 - 18.75) = 15,000 F

Materials Quantity Variance = SP(SQ - AQ used) = 20 (9,375 - 9,500) = $2,500 U

1. b Analysis of the Purchase Decision:

The deal should be signed. The lower price of $18.75 an ounce is significantly lower than the old rate of $20.00 an ounce, earning a favorable
price variance of $15,000 for the month. Further, the low negative quantity variance of $2,500 indicates that the material from the new
supplier likely did not cause any issue in the production process.
2.a
Standard Hours Allowed for Output, at the
Actual Hours of Input, at the Actual Rate (AH × AR) Actual Hours of Input, at the Standard Rate (AH × SR) Standard Rate (SH × SR)
5,600 hours* × $22.00 per hour = $123,200 5,600 hours × $22.50 per hour = $126,000 5,250 hours** × $22.50 per hour = $118,125
Labor rate variance: $2,800 F
Labor efficiency variance: $7,875 U
Spending Variance: $5,075 U
* 35 technicians × 160 hours per technician = 5,600 hours
** 3,750 units × 1.4 hours per technician = 5,250 hours

Labor rate variance = AH (AR − SR)

5,600 hours × ($22.00 per hour − $22.50 per hour) = $2,800 F
Labor efficiency variance = SR (AH − SH)
$22.50 per hour × (5,600 hours − 5,250 hours) = $7,875 U
Based on the situation described, the new labor mix likely should not be continued. While it lowers the average hourly labor cost from $22.50
to $22.00, which results in a favorable labor rate variance of $2,800, this reduction is offset by a significant unfavorable labor efficiency
variance. Therefore, the overall labor costs increase due to the lower efficiency in the new labor mix. Consequently, the company might not
2.b benefit from continuing with this new mix of senior technicians and assistants.

3
Standard Hours Allowed for Output, at the
Actual Hours of Input, at the Actual Rate (AH X AR) Actual Hours of Input, at the Standard Rate (AH X SR) Standard Rate (SH X SR)
$18,200 5,600 hours (*) x $3.50 per hour = $19,600 5,20 hours(**) x $3.50 per hour = $18,375

Direct labor hours: (*) 35 technicians x 160 hours per technician = 5,600 hours
(**): 3,750 units x 1.4 hours per unit = 5,250 hours
Variable overhead rate variance = AH (AR - SR) = 5,600 hours ($3.25 per hour - $3.40 per hour) = $1,400 F
Variable overhead efficiency variance = SR (AH - SH) = $3.50 per hour (5,6000 hours - 5,250 hours) = $1,225 U

The labor efficiency variance and the variable overhead efficiency variance are both calculated by comparing the actual labor-hours worked to
the standard labor-hours. Therefore, if the labor efficiency variance is unfavorable, it leads to an unfavorable variable overhead efficiency
variance as well, since overhead costs are linked to labor-hours.
Question 2
2.1 Total manufacturing overhead cost per box of Chap-Off $1.40
Less fixed portion ($90,000 ÷ 100,000 boxes) 0.90
Variable overhead cost per box 0.50

The avoidable manufacturing cost per box of Chap-Off

Cost avoided by purchasing the tubes:
Direct materials ($3.60 × 25%) $0.90
Direct labor ($2.00 × 10%) 0.20
Variable manufacturing overhead ($0.50 × 10%) 0.05
Avoidable manufacturing cost per box of Chap-Off $1.15

2.2 The financial (disadvantage) per box of Chap-Off is computed as follows:

Avoidable manufacturing cost per box of Chap-Off $1.15

Less price paid to supplier 1.35
Financial (disadvantage) per box of Chap-Off $(0.20)

2.3 The financial (disadvantage) of outsourcing 100,000 boxes of Chap-Off is computed as follows:

Number of boxes (a) 100,000

Financial (disadvantage) per box of Chap-Off (b) ($0.20)
Financial (disadvantage) in total (a) x (b) ($20,000)

Silven should make the tubes instead of buying them because the supplier's price ($1.35) is higher than the cost to make them in-house
2.4 ($1.15).

2.5
The most the company is willing to pay is $1.15 per box because that’s how much it costs to make the tubes themselves. But to make buying
a better option than making, the price should be less than $1.15 per box.

2.6 At a volume of 120,000 boxes, the company should buy the tubes. The computations are:
Cost of making 120,000 boxes of tubes:
120,000 boxes x $1.15 per box $138,000
Rental cost of equipment 40,000
Total cost $178,000

Cost of buying 120,000 boxes of tubes:

120,000 boxes x $1.35 per box $162,000

Thus, buying the tubes provides a financial advantage of $16,000 (= $178,000-$162,000) per year.
 In this situation, the company should produce 100,000 boxes of tubes itself and buy the remaining 20,000 boxes from an external supplier.
2.7 The costs would be broken down as follows:

Cost of making: 100,000 boxes x $1.15 per box $115,000

Cost of buying: 20,000 boxes x $1.35 per box 27,000
Total cost $142,000

2.8 Management should also consider these important factors:

Whether the supplier can deliver the tubes on time as needed.

The quality of the tubes provided by the supplier.

Other ways the company could use the space and resources if they don’t make the tubes themselves.

Whether the supplier can handle larger orders if the company needs more tubes in the future.

The risk of relying on the supplier, especially if they turn out to be unreliable and it's hard to find another one.