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) Direct labor (0.75 hr. $12) Total prime cost During the first month of the year, the Boise plant produced 92,000 belts. Actual leather purchased was 281500 strips at $3.60 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 78,500 hours at $14.00 per hour. Required: 1 $12.00 9.00 $21.00 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 112,600 X Favorable Price variance Usage variance Total variance Unfavorable Favorable

Answer 1

Price Variance = (SP - AP) * AQ

= (4 - 3.60) * 281,500

= - 112,600 Favourable (minus sign here)

Usage variance = (SQ-AQ) * SP

= (3*92,000 - 281,500) * 4

= 22,000 Unfavorable

Total Variance = 112,600 F + 22,000 U

= - 90,600 Favourable (minus sign here)