Question

Brisbane Limited produces high-quality leather boots. The company has a standard cost system and has set the following standards for materials and labour: Leather (12 strips @ $20) $240 Direct labour (10 hours @ $12) $120 Total prime cost $360/ During the year, Brisbane produced 125 pairs of boots. Actual leather purchased was 1,700 strips, at $16 per strip. There were no beginning or ending inventories of leather. Actual direct labour was 1,500 hours at $15 per hour. 13. respectively. Compute the materials price variance and the materials usage variance, 125 lance A B . $9,000 F and $1,200 U $9,300 U and $1,500 F $6,800 F and $4,000 U | $6,800 U and $4,000 F 14. Compute the total budget variances for materials and labour, respectively.

Answer 1

Solution to question 13 is as under:

Material Price Variance (MPV): It is the difference between the standard price and the actual price for the actual quantity of material used for production. Formula: MPV=(Standard Price-Actual Price)*Actual Quantity

As per the Question, Standard Price: $ 20 per Leather Strip, Actual Price: $ 16 per Leather Strip and Actual Quantity: 1700 Leather Strips

Material Price Variance (MPV)= (20-16)*1700 = $ 6800 (F).

Material Usage Variance (MUV): It is the difference between the standard quantity specified for actual production and the actual quantity used at the standard purchase price. Formula: MUV=(Standard Quantity-Actual Quantity)*Standard Price

As per the question, Standard Quantity: 12*125=1500 Leather Strips, Actual Quantity: 1700 Leather Strips and Standard Price: $20

Material Usage Variance (MUV): (1500-1700)*20= 4000(U).

Hence, Option C is the Correct answer for Question 13.

Solution to question 14 is as under:

Budget Variance: It is the difference between the budgeted or baseline amount and the actual amount so incurred. The budgeted variance is favorable when the actual cost is less than the standard cost and vice versa.

Computation of Budget Variance for Material

Standard Cost: $ 240* 125 = $ 30000

Actual Cost: $ 16* 1700= $ 27200

Budgeted Variance for Material; Standard Cost - Actual Cost .i.e. $ (30000-27200) =$ 2800 (F) Favorable

Computation of Budgeted Variance for Labour:

Standard Labour Cost : $ 120*125 = $ 15000

Actual Labour Cost: $ 15*1500= $ 22500

Budgeted Variance for Labour: Standard Labour Cost- Actual Labour Cost .i.e $ (15000-22500)= $7500(U) Unfavorable