Budget Variances, Materials and Labor

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

Required:

1. Compute the costs of leather and direct labor that should be incurred for the production of 92,000 leather belts.

Cost of materials	$
Cost of direct labor	$

2. Compute the total budget variances for materials and labor.

	Total Budget Variance
Materials	$	Favorable
Labor	$	Unfavorable

3. Conceptual Connection: Would you consider these variances material with a need for investigation? Yes