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: 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 hours of direct labor and actual direct labor costs were $184,800. The direct labor price variance was $13,200 F. Which of the following would be a logical explanation for this 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:  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 hours of direct labor and actual direct labor costs were $184,800. The direct labor price variance was $13,200 F. Which of the following would be a logical explanation for this variance?

Quizplus · Accepted Answer

The direct labor price variance is calculated as the difference between the actual cost of labor and the standard cost of labor (based on the standard rate per hour). Since the variance is favorable (F), it means that the company paid less per hour for labor than the standard rate. Therefore, option B is the logical explanation for this variance. Option A is incorrect as the company actually used more hours than allowed by standards. Option C and D are not relevant to the direct labor price variance.

Faas Marine Stores Company Manufactures Decorative Fittings for Luxury Yachts