PLEASE GIVE DETAILSTHANK YOU! Budget Variances, Materials and Labor Cinturon Cor
ID: 2542898 • Letter: P
Question
PLEASE GIVE DETAILSTHANK YOU!
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) Direct labor (0.75 hr. $12) Total prime cost During the first month of the year, 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 78,200 hours at $12.50 per hour Required: 1. Compute the costs of leather and direct labor that should be incurred for the production of 92,000 leather belts. Cost of materials Cost of direct labor 2. Compute the total budget variances for materials and labor. $12.00 9.00 $21.00 Total Budget Variance Materials Labor Conceptual Connection: Would you consider these variances material with a need for investigation?Explanation / Answer
Solution 1
Cost of material (leather) for the production of 92,000 belts
= Actual leather purchased X Price per strip
= 287,500 X $ 3.60 per strip
=$ 1,035,000
Cost of direct labour for the production of 92,000 belts
= Actual direct labour X Rate per hour
=78,200 X 12.50 per hour
= $ 9, 77,500
Solution 2
Total Material (leather) Variance
= Actual material (leather) Cost – Standard material (leather) Cost
=$1,035,000 - $1,104,000
= $69,000 Favourable
Total material variance is favourable as actual material cost is less than the standard material cost.
Total Labour Variance
= Actual labour Cost – Standard labour Cost
= $977,500 - $828,000
= $ 149,500 Unfavourable
Total labour variance is unfavourable as actual material cost is greater than the standard material cost.
Working Notes:
Leather Standard Cost = $1,104,000*
*For production of 1 belt standard leather required is 3 strips,
So, for production of 92,000 belts standard leather strips required will be
= 3 X 92,000= 276,000 strips
Leather Standard Cost =276,000 strips X $ 4 per strip = $1,104,000
Leather Actual Cost (Given) = $1,035,000**
**287,500 X $ 3.60 per strip = $1,035,000
Labour Standard Cost = $828,000***
***For production of 1 belt standard labour required is 0.75 hours,
So, for production of 92,000 belts standard labour hour required will be
= 0.75 hr X 92,000= 69,000 hours
Labour Planned Cost = $ 12 X 69,000 hours = $828,000
Labour Actual Cost (Given) = $977,500****
****78,200 hr X $ 12.50 per hour = $977,500
Solution 3
Yes there is a need for investigation specifically for labour variance as there might be some loopholes in the planning or budgeted labour cost as the variance is unfavourable to the extent of $ 149,500.
While total material variance if favourable, so there is not much need of investigation in this regard.
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