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Wright Inc. produces leather purses. Wright has developed a static budget for the first quarter based on 25,000 direct labor hours. During the quarter, the

Wright Inc. produces leather purses. Wright has developed a static budget for the first quarter based on 25,000 direct labor hours. During the quarter, the actual activity was 30,000 direct labor hours. Data for the first quarter are summarized as follows:

Line Item Description

Static Budget

(25,000 hours)

Actual Costs

(30,000 hours)

Direct materials cost $ 85,000 $ 90,000
Direct labor cost 180,000 164,000
Building rental 56,000 60,000
Total $321,000 $314,000

  1. By comparing the static budget to the actual outcomes, it can be determined that:
  2. a. the direct materials variance is favorable.
  3. b. the comparison is useful for determining how well costs are being controlled.
  4. c. the direct labor variance is unfavorable.
  5. d. the comparison is useful for assessing managerial efficiency.

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