Bolsa 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: During the first month of the year, Boise plant produced 40,000 belts. Actual leather purchased was 125,000 strips at $3.60 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 34,000 hours at $12.50 per hour. Budget Variances, Materials and Labor Refer to the information for Bolsa Corporation above. Required: 1. Compute the costs of leather and direct labor that should be incurred for the production of 40,000 leather belts. 2. Compute the total budget variances for materials and labor. 3. Conceptual Connection: Would you consider these variances material with a need for investigation? Explain.
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
Bolsa 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:
During the first month of the year, Boise plant produced 40,000 belts. Actual leather purchased was 125,000 strips at $3.60 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 34,000 hours at $12.50 per hour.
Budget Variances, Materials and Labor Refer to the information for Bolsa Corporation above. Required:
1. Compute the costs of leather and direct labor that should be incurred for the production of 40,000 leather belts.
2. Compute the total budget variances for materials and labor.
3. Conceptual Connection: Would you consider these variances material with a need for investigation? Explain.
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