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 could have produced which of the following variances?

Question

Quizplus · Accepted Answer

The negotiation of a new labor contract that required employees to bear a greater percentage of benefit costs would likely lead to a reduction in the company's direct labor costs, resulting in a favorable labor price variance. This is because the company is paying less for labor than it previously did, which is considered favorable from a cost perspective.

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