Cinturon Corporation produces high-quality leather belts. The company\'s plant i
ID: 2432495 • Letter: C
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:
During the first month of the year, the Boise plant produced 92,000 belts. Actual leather purchased was 287,500 strips at $4.20 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 79,400 hours at $13.00 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.
Leather (3 strips @ $4) $12.00 Direct labor (0.75 hr. @ $12) 9.00 Total prime cost $21.00Explanation / Answer
Direct Labour
Standard Rate (SR)
$12.00
Standard Hours (SH)
(0.75 *92,000)
69,000
Actual Hours (AH)
79,400
Actual Rate (AR)
$13.00
Labour Rate Variance:
AH
X
SR
Minus
AH
X
AR
79,400
X
$12.00
Minus
79,400
X
13.00
9,52,800
Minus
10,32,200
(79,400)
Unfavourable
Labour Efficiency Variance:
SH
X
SR
Minus
AH
X
SR
69,000
X
$12.00
Minus
79,400
X
$12.00
8,28,000
Minus
9,52,800
(1,24,800)
Unfavourable
Total variance
(2,04,200)
Unfavourable
Direct Labour
Standard Rate (SR)
$12.00
Standard Hours (SH)
(0.75 *92,000)
69,000
Actual Hours (AH)
79,400
Actual Rate (AR)
$13.00
Labour Rate Variance:
AH
X
SR
Minus
AH
X
AR
79,400
X
$12.00
Minus
79,400
X
13.00
9,52,800
Minus
10,32,200
(79,400)
Unfavourable
Labour Efficiency Variance:
SH
X
SR
Minus
AH
X
SR
69,000
X
$12.00
Minus
79,400
X
$12.00
8,28,000
Minus
9,52,800
(1,24,800)
Unfavourable
Total variance
(2,04,200)
Unfavourable
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