Mahn Corporation produces high-quality leather belts. The company uses a standard cost system and has set the following standards for materials and labour:
Leather (3 strips @ $4) ........................$12.00
Direct labour (0.75 hr. @ $12) ...................9.00
Total prime cost ..................................21.00
During the year, Mahn 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 labour was 78,200 hours at $12.50 per hour.
Required:
1. Compute the costs of leather and direct labour that should be incurred for the production of 92,000 leather belts.
2. Compute the total budget variances for materials and labour.
3. Would you consider these variances material with a need for investigation? Explain.