Unformatted text preview: Labor Variances
Cinturan 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 )
Direct labor ( 0. 75 hr . [ $ 12 )
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. 20
per strip . There were no beginning or ending inventories of leather . Actual direct labor was 78 , 300 hours at $ 15.00 per hour
1 . Break down the total variance for labor into a rate variance and an efficiency variance using the columnar and formula*
$ 23:4, 900|
$ 11 1 , 600\\
$| 3:46, 500|
2. CONCEPTUAL CONNECTION AS Part of the investigation of the unfavorable variances , the plant manager interviews the
production manager . The production manager complains strongly about the quality of the leather strips . He indicates that the
strips are of lower quality than usual and that workers have to be more careful to avoid a belt with cracks and more time is
required . Also , even with extra care , many belts have to be discarded and new ones produced to replace the rejects . This
replacement work has also produced some overtime demands . What corrective action should the plant manager take ?"
1 . Return to suppliers that provide the quality corresponding to the price standard .
2 . Employ more skilled labor at a cost lesser than the savings made by buying cheap material and improve the product quality .
3 . There is no need to change anything . The sales are not affected by this low quality of raw material .
View Full Document
- Winter '15
- production manager, plant manager