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

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The negotiated labor contract resulted in the company's employees bearing a greater percentage of benefit costs, which reduced the cost of direct labor. However, this resulted in the resignation of experienced and highly skilled workers who were replaced by new employees who needed time to be trained. As a result, the labor efficiency variance was unfavorable, leading to a reduction in profits. Neither materials price nor efficiency variances are relevant to this situation.

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