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. At the end of the quarter, an examination of the labor cost records showed that the company used 11,000 direct labor hours and actual total direct labor costs were $184,800.
How much is the direct labor efficiency 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. At the end of the quarter, an examination of the labor cost records showed that the company used 11,000 direct labor hours and actual total direct labor costs were $184,800.
How much is the direct labor efficiency variance?

Quizplus · Accepted Answer

The direct labor efficiency variance is calculated as the difference between the actual direct labor hours used and the standard direct labor hours allowed for the actual output, multiplied by the standard direct labor rate. In this case, the actual direct labor hours used were 11,000, the standard direct labor hours allowed for the actual output were 10,000 (5,000 units x 2 hours per unit), and the standard direct labor rate was $18.00 per hour. Therefore, the direct labor efficiency variance is (11,000 - 10,000) x $18.00 = $18,000 U.

Faas Marine Stores Company Manufactures Decorative Fittings for Luxury Yachts