Question

Materials 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 $12.00 Leather (3 strips @ $4) Direct labor (0.75 hr. @ $12) Total prime cost 9.00 $21.00 During the first month of the year, the Boise plant produced 92.000 belts. Actual leather purchased was 303,500 strips at $3.60 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 78,200 hours at $15.00 per hour. Required: 1. Break down the total variance for materials into a price variance and a usage variance using the columnar and formula approaches. Enter favorable values as negative numbers and unfavorable values as positive numbers. Price variance $1 Favorable Usage variances Unfavorable → Total variance $ Favorable

Answer 1

Ans. A	Price variance = (Standard price   - Actual price) * Actual quantity
	($4 - $3.60) * 303,500
	$0.40 * 303,500
	$121,400	favorable
Ans. B	Usage variance = (Standard quantity - actual quantity) * Standard price
	(276,000 - 303,500) * $4
	-27,500* $4
	-$110,000	or   $110,000 unfavorable
	*Standard quantity = Actual output * Standard quantity per unit of output
	92,000 belts * 3 strips
	276,000 strips
Ans. C	Total variance = Price variance + Usage variance
	$121,400 + (-$110,000)
	$11,400	favorable