Labor Variances Cinturon Corporation produces high-quality leather belts. The co

Question

Labor 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 S4) Direct labor (0.75 hr. $12) Total prime During the first month of the year, the Boise plant produced 92,000 belts. Actual leather purchased was 287,500 strips at $3.60 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 79,000 hours at $12.50 per hour. Required: 1. Break down the total variance for labor into a rate variance and an efficiency variance using the columnar and formula approaches, Rate variance Efficiency variance Total variance 9.00 cost $21.00 Unfavorable Unfavorable Unfavorable v

Explanation / Answer

Actual output: 92000 units Std labour hour per unit: 0.75 hr Std labour hours allowed (92000*0.75): 69000 hours Actual Hours worked: 79000 hours Actual rate per hour: $ 12.50 per hour Std rate per hour: $ 12 per hour Labour rate variance: Actual hours (Std rate-Actual rate) 79000 (12.00- 12.50) = $ 39500 Unfavorable Labour efficiency Variance: St rate (Std hours-Actual Hours) 12.00 (69000-79000) = $ 120,000 Unfavorablr Labour cost variance: Std hours*Std rate per hour - Actual hours*Actual rate per hour 69000*12   -   79000*12.50 = $159500 Unfavorable

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