Refer to the data provided in Exercise 10-9.

In Exercise 10-9.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. Break down the total variance for materials into a price variance and a usage variance using the columnar and formula approaches.

2. Suppose the plant manager investigates the materials variances and is told by the purchasing manager that a cheaper source of leather strips had been discovered and that this is the reason for the favourable materials price variance. Quite pleased, the purchasing manager suggests that the materials price standard be updated to reflect this new, less expensive source of leather strips. Should the plant manager update the materials price standard as suggested? Why or why not?