Question: 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.
Materials Variances Refer to the information for Bolsa Corporation above.
Required: 1. Break down the total variance for materials into a price variance and a usage variance using the columnar and formula approaches.
2. Conceptual Connection: Suppose the Boise 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 favorable 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?