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 (4 strips @ $4.00) $16.00 Direct labor (0.25 hr. @ $14.00) 3.50 Total prime cost $19.50 During the first month of the year, the Boise plant produced 35,000 belts. Actual leather purchased was 140,000 strips at $3.00 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 31,000 hours at $15.50 per hour. Required: 1. Compute the costs of leather and direct labor that should be incurred for the production of 35,000 leather belts. Materials Labor 2. Compute the total budget variances for materials and labor. Total Budget Variance Materials Favorable Unfavorable Labor

Answer 1

Answer:

Requirement 1		Amount($)
Cost of Materials	35,000 Belts X4 Strips X $4	5,60,000
Cost of direct labour	35,000 Belts X0.25 Hr X $14	1,22,500

Material Variance
Leather Standard Cost	5,60,000
Actual Leather Cost 140,000*3	4,20,000
Material Variance	$140,000 Favorable
Direct Labour Standard Cost	1,22,500
Actual Labour Cost 31,000*15.50	4,80,500
Labour Bariance	$3,58,000 (unfavorable)