Budget Variances, Materials and Labor Cinturon Corporation produces high-quality

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) 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 1,035,000 X 977,500 X Total Budget Variance 69,000 Favorable Materials Labor 3. Conceptual Connection: Would you consider these variances material with a need for investigation? Yes 149,500 Unfavorable

Explanation / Answer

Requirement 2 & 3 are already.

Note: for your explanation, You have calculated in Req.1 as actual cost of material and direct labor instead of standard cost. In question we need to read carefully the word "should be incurred for production"

Requirement 1 Cost of Materials 92000 Belts X3 Strips X $4          1,104,000 Cost of direct labour 92000 Belts X0.75 Hr X $12              828,000

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