Question

Labor 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: Leather (3 strips 34) $12.00 Direct labor (0.75 hr. $12) 9.00 Total prime cost $21.00 During the first month of the year, Bolse 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. Break down the total variance for labor into a rate variance and an efficiency variance using the columnar and formula approaches Rate variance Unfavorable Emiciency variance Unfavorable Total variance lavorable 2. CONCEPTUAL CONNECTIO As part of the inve r n of the unfavorable variances, the plant manager interviews the production manager. The production manager complains strongly about the quality of the leather strips. He indicates that the strips are of lower quality than usual and that workers have to be more careful to avoid a belt with cracks and more time is required. Also, even with extra care, many belts have to be discarded and new ones produced to replace the rejects. This replacement work has also produced some overtime demands. What corrective action should the plant manager take? 1. Return to suppliers that provide the quality corresponding to the price standard. 2. Employ more skilled labor at a cost lesser than the savings made by buying cheap material and improve the product quality 3. There is no need to change anything. The sales are not affected by this low quality of raw material

Answer 1

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Cinturon Corporation
Answer 1
	Amount $	Note
Labor Hour used	78,200.00	A
Standard Rate	12.00	B
Actual Labor cost, at Standard Rate	938,400.00	C=A*B
Labor Hour used	78,200.00	See A
Standard Rate	12.50	D
Actual Labor cost	977,500.00	E=A*D
Labor Rate Variance	39,100.00	F=E-A
Labor Rate Variance is Unfavorable
Standard Labor hour allowed for 1 belt	0.75	G
Number of belts produced	92,000.00	H
Standard Labor hours allowed	69,000.00	I=G*H
Standard Rate	12.00	See B
Standard Cost for Actual Output	828,000.00	J=I*B
Actual Labor cost, at Standard Rate	938,400.00	See C
Labor Efficiency Variance	110,400.00	K=C-J
Labor Efficiency Variance is Unfavorable
Total Labor Variance	149,500.00	L=F+K
Total Labor Variance is Unfavorable
Answer 2
Option 1