Question

Materials Variances Cinturon Corporation produces high-quality leather belts. The company's plant in Boise uses a standard costing system and has set the following standards for materials and labor: Leather (3 strips @ $4) $12.00 Direct labor (0.75 hr. @ $12) 9.00 Total prime cost $21.00 During the first month of the year, the Boise plant produced 92,000 belts. Actual leather purchased was 300,500 strips at $3.00 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 78,700 hours at $14.00 per hour. Required: 1. Break down the total variance for materials into a price variance and a usage variance using the columnar and formula approaches. Enter favorable values as negative numbers and unfavorable values as positive numbers. Favorable Price variance $ Usage variances Total variance $ Unfavorable Favorable

Answer 1

Solution

Material Price Variance	$ -300,500.00	Favourable-F
Material usage variance	$         98,000.00	Unfavourable-U
Total Material Variance	$ - 202,500.00	Favourable-F

Working

Material Price Variance
(	Standard Rate	-	Actual Rate	)	x	Actual Quantity
(	$                    4.00	-	$                     3.00	)	x	300500
	300500
	Variance		$       3,00,500.00			Favourable-F
Material Usage Variance
(	Standard Quantity	-	Actual Quantity	)	x	Standard Rate
(	276000	-	300500	)	x	$              4.00
	-98000
	Variance		$           98,000.00			Unfavourable-U
Material Total Variance
(	Standard Cost	-	Actual Cost	)
(	$   11,04,000.00	-	$       9,01,500.00	)
	202500
	Variance		$       2,02,500.00			Favourable-F

.

Standard DATA for		92000	Belts
	Quantity (SQ)	Rate (SR)	Standard Cost
	[A]	[B]	[A x B]
Direct Material	( 3 strips x 92000 Belts)=276000 strips	$                   4.00	$      11,04,000.00

.

Actual DATA for		92000	Belts
	Quantity (AQ)	Rate (AR)	Actual Cost
Direct Material	300500	$            3.00	$      9,01,500.00