Refer to the information for Bolsa Corporation above.
Bolsa 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 40,000 belts. Actual leather purchased was 125,000 strips at $ 3.60 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 34,000 hours at $ 12.50 per hour.
Required:
1. Compute the costs of leather and direct labor that should be incurred for the production of 40,000 leather belts.
2. Compute the total budget variances for materials and labor.
3. Would you consider these variances material with a need for investigation? Explain.