Question

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. @ $10.00)	2.50
Total prime cost	$18.50

During the first month of the year, the Boise plant produced 34,000 belts. Actual leather purchased was 120,000 strips at $3.40 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 36,000 hours at $14.00 per hour.

Required:

1. Compute the costs of leather and direct labor that should be incurred for the production of 34,000 leather belts.

Materials	$
Labor	$

2. Compute the total budget variances for materials and labor.

	Total Budget Variance
Materials	$	Favorable or Unfavorable
Labor	$	Unfavorable or Favorable

3. Conceptual Connection: Would you consider these variances material with a need for investigation?
No /Yes

Answer 1

1) Calculate cost

Materials (34000*16)	544000
Labor (34000*2.5)	85000

2) Total budget variance

	Total budget variance
Material	544000-(120000*3.4) = 136000 F
Labor	85000-(36000*14) = 419000 U

3) Yes, These variances are material