Question:
STANDARD COSTS, DECOMPOSITION OF BUDGET VARIANCES, DIRECT MATERIALS AND DIRECT LABOR
Vaquero Corporation produces cowboy boots. The company uses a standard costing system and has set the following standards for direct materials and direct labor (for one pair of boots):
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Leather (6 strips @ $10)
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$60
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Direct labor (2 hrs. @ $12)
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24
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Total prime cost
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$84
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During the year, Vaquero produced 8,000 pairs of boots. The actual leather purchased was 49,600 strips at $9.98 per strip. There were no beginning or ending inventories of leather. Actual direct labor was 16,800 hours at $12.25 per hour.
Required:
1. Compute the costs of leather and direct labor that should have been incurred for the production of 8,000 pairs of boots.
2. Compute the total budget variances for direct materials and direct labor.
3. Break down the total budget variance for direct materials into a price variance and a usage variance.
Prepare the journal entries associated with these variances.
4. Break down the total budget variance for direct labor into a rate variance and an efficiency variance. Prepare the journal entries associated with these variances.