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 (2 strips @ $6.00)	$12.00
Direct labor (0.25 hr. @ $11.00)	2.75
Total prime cost	$14.75

During the first month of the year, the Boise plant produced 31,000 belts. Actual leather purchased was 100,000 strips at $3.30 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 35,000 hours at $12.50 per hour.

Required:

1. Compute the costs of leather and direct labor that should be incurred for the production of 31,000 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

Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Part 1
Material Cost	31,000*$12		$              372,000
Labor Cost	31,000*$2.75		$                85,250
Part 2
		Actual Cost	Budgeted Cost	Variance
Material Cost	100,000*$3.30	$       330,000	$              372,000	$       42,000	Favorable
Labor Cost	35,000*$12.50	$       437,500	$                85,250	$     352,250	Unfavorable
Part 3
Yes, Material cost variance is higher than 10% of budget and Labor variance is also huge
Both has to be investigated since there may be inter-connection link between two as well.