A company's production department was experiencing a high defect rate on the assembly line,which was slowing down production and causing wastage of valuable direct materials.The production manager decided to recruit some highly skilled production workers from another company to bring down the defect rate but was worried that the higher wages of these workers might negatively affect operating income.This would produce a(n)________.
A) unfavorable direct materials cost variance
B) unfavorable direct labor cost variance
C) unfavorable direct labor efficiency variance
D) unfavorable direct materials efficiency variance

Question

Quizplus · Accepted Answer

The hiring of highly skilled production workers at a higher wage would result in an unfavorable direct labor cost variance because the cost of labor is expected to increase, which may reduce the operating income. The other answer choices do not apply to this situation. A direct materials cost variance is related to the cost of materials, not labor. Direct labor efficiency variance and direct materials efficiency variance are related to the amount of labor or materials used to produce a unit of output, not the cost of labor.

A Company's Production Department Was Experiencing a High Defect Rate