Question

Budget Variances, Materials and Labor 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 @ $4.00) $12.00 Direct labor (1.25 hr. @ $9.00) 11.25 Total prime cost $23.25 During the first month of the year, the Boise plant produced 37,000 belts. Actual leather purchased was 100,000 strips at $3.10 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 33,000 hours at $13.00 per hour. Required: 1. Compute the costs of leather and direct labor that should be incurred for the production of 37,000 leather belts. Materials Labor 2. Compute the total budget variances for materials and labor. Total Budget Variance Materials Labor 3. Conceptual Connection: Would you consider these variances material with a need for investigation?

Answer 1

Answer is given below

Costs that should be incurred for production of 37,000 leather bags Standard cost for actual production $444,000 Materials |(37,000 $12) $416,250 Labor (37,000 * $11.25) 2. Total Budget variance $134,000 Favorable Materials (Standard cost for actual output- Actual cost) ($444,000- 310,000) -$12,750 Adverse Labor (Standard cost for actual output- Actual cost) ($416,250- $429,000) 3. Yes these variances are material and needs investigation