Example (2)

Material Variance if quantity of materials purchased = quantity of materials used:

Zapato Corporation produces leather boots. The company uses a standard cost system and has

set the following standards for materials and labor (for one pair of boots):

Leather (3 strips @ $10) $30

Direct labor (2 hrs. @ $12) $24

Total prime cost $54

During the year, Zapato produced 2,000 pairs of leather boots. The actual leather purchased was

6,200 strips at $9.96 per strip. There were no beginning or ending inventories of leather. Actual.

direct labor was 4,200 hours @ $12.50.

Required:

1. Compute the costs of leather and direct labor that should have been incurred

for the production of 2,000 pairs of boots.

2. Compute the total variances for materials and labor.

3. Break down the total variance for materials into a price variance and a usage

variance. Prepare the journal entries associated with these variances.

4. Break down the total variance for labor into a rate variance and an efficiency

variance. Prepare the journal entries associated with these variances