Faas Marine Stores Company manufactures decorative fittings for luxury yachts which require highly skilled labor, and special metallic materials. Faas uses standard costs to prepare its flexible budget. For the first quarter of 2011, direct material and direct labor standards for one of their popular products were as follows:
$$\begin{array} { l l }
\text { Materials: } & 1.5 \text { pounds per unit; } \$ 4.00 \text { per pound } \
\text { Labor: } & 2.0 \text { hours per unit; } \$ 18.00 \text { per hour }
\end{array}$$
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During the first quarter, Faas produced 5,000 units of this product. Actual direct materials costs were $29,750. Actual direct labor costs were $184,800.
For purposes of calculating the flexible budget variances, what is the direct labor cost variance?

Question

Faas Marine Stores Company manufactures decorative fittings for luxury yachts which require highly skilled labor, and special metallic materials. Faas uses standard costs to prepare its flexible budget. For the first quarter of 2011, direct material and direct labor standards for one of their popular products were as follows:
$$\begin{array} { l l } 
\text { Materials: } & 1.5 \text { pounds per unit; } \$ 4.00 \text { per pound } \
\text { Labor: } & 2.0 \text { hours per unit; } \$ 18.00 \text { per hour }
\end{array}$$
-
During the first quarter, Faas produced 5,000 units of this product. Actual direct materials costs were $29,750. Actual direct labor costs were $184,800.
For purposes of calculating the flexible budget variances, what is the direct labor cost variance?

Quizplus · Accepted Answer

The direct labor cost variance is calculated as (Actual Hours x Actual Rate) - (Standard Hours x Standard Rate). Here, the actual labor cost is $184,800, and the standard labor cost for 5,000 units is 5,000 units x 2 hours/unit x $18/hour = $180,000. The variance is $184,800 - $180,000 = $4,800 Unfavorable (U).

Faas Marine Stores Company Manufactures Decorative Fittings for Luxury Yachts