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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Use the following information for Exercises 10-45 through 10-47:

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:

Chapter 10, Problem 45E, Use the following information for Exercises 10-45 through 10-47: Cinturon Corporation produces

During the first month of the year, the Boise plant produced 92,000 belts. Actual leather purchased was 287,500 strips at $3.60 per strip. There was no beginning or ending inventories of leather. Actual direct labor was 78,200 hours at $12.50 per hour.

Exercise 10-45 Budget Variances, Materials and Labor

Refer to the information for Cinturon Corporation above.

Required:

  1. 1. Compute the costs of leather and direct labor that should be incurred for the production of 92,000 leather belts.
  2. 2. Compute the total budget variances for materials and labor.
  3. 3. CONCEPTUAL CONNECTION Would you consider these variances material with a need for investigation? Explain.

1.

To determine

Calculate the costs of leather and direct labor that is incurred for the manufacturing of 92,000 leather belts.

Explanation

Variance:

The amount obtained when actual cost is deducted from budgeted cost is known as variance. Variance is calculated to find whether the cost is over applied or under applied.

Use the following formula to calculate the value of cost of leather:

Cost of Leather=Actual Units×Rate of Leather Per Unit

Substitute 92,000 belts for actual units and $12 for rate of leather per unit in the above formula.

Cost of Leather=92,000 belts×$12=$1,104,000

Therefore, the cost of leather is $1,104,000

2.

To determine

Calculate the total budget variances for material and labor.

3.

To determine

Identify whether the material variances are need to be verified or not. Also, explain the reason.

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