Pierce Marine Stores Company manufactures special metallic materials and decorat

Question

Pierce Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Pierce uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows:

Direct materials: 3 pounds per unit; $3 per pound

Direct labor: 5 hours per unit; $16 per hour

Pierce produced 5,000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 30,000 direct labor hours and actual total direct labor costs were $375,000. What is the direct labor efficiency variance?

A. $25,000 F

B. $80,000 F

C.$25,000 U

D. $80,000 U

Explanation / Answer

Direct labor efficiency variance = actual hours x standard rate – standard hours x standard rate

                                                                =30,000 x 16    - ( 5000 x5) x16

                                                                = 480,000 – 400,000

                                                                = 80,000

Since Actual hours (30,000) is greater is greater than standard hours ( 5000x5 =25000), this variance is unfavorable.

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