Answered: Cinturon Corporation produces…

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter9: Evaluating Variances From Standard Costs

Section: Chapter Questions

Problem 4E: The following data relate to the direct materials cost for the production of 50,000 automobile...

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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 @ $3.00)	$12.00
Direct labor (0.75 hr. @ $10.00)	7.50
Total prime cost	$19.50

During the first month of the year, the Boise plant produced 40,000 belts. Actual leather purchased was 140,000 strips at $3.30 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 36,000 hours at $13.50 per hour.

Required:

1. Compute the costs of leather and direct labor that should be incurred for the production of 40,000 leather belts.

Definition Definition Measure used to estimate the difference between the budgeted and annual proportion for a specific accounting year. A favorable budget variance refers to positive variances or gains, while unfavorable or negative variances refer to a shortfall in the budget. A budget variance is indicative of the instances where the actual costs incurred are higher or lower than the estimated costs.

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