The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with her factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned, and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company's profits fell 10%. This situation would have produced a(n):
A)favorable direct materials cost variance.
B)unfavorable direct labor cost variance.
C)unfavorable direct labor efficiency variance.
D)favorable direct materials efficiency variance.

Question

Quizplus · Accepted Answer

The negotiated labor contract resulted in the experienced workers leaving and being replaced by slower, less efficient workers, leading to a decrease in productivity and an unfavorable direct labor efficiency variance. The other answer choices are not relevant to the situation described.

The Production Manager of a Company, in an Effort to Gain