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 @ $4) $12.00 Direct labor (0.75 hr. @ $12) 9.00 Total prime cost $21.00 During the first month of the year, the Boise plant produced 92,000 belts. Actual leather purchased was 287,500 strips at $4.50 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 78,300 hours at $14.00 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.
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.
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 @ $4) | $12.00 |
| Direct labor (0.75 hr. @ $12) | 9.00 |
| Total prime cost | $21.00 |
During the first month of the year, the Boise plant produced 92,000 belts. Actual leather purchased was 287,500 strips at $4.50 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 78,300 hours at $14.00 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.
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