Lee Maritime Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor

Question

Lee uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows:

Direct materials: 2 pounds per unit; $3 per pound
Direct labor: 4 hours per unit; $14 per hour

Lee produced 5,000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 30,000 direct labor hours and actual total direct labor costs were $375,000. What is the direct labor cost variance? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)
A) $45,000 Favorable
B) $280,000 Favorable
C) $280,000 Unfavorable
D) $45,000 Unfavorable

Answer 1

A .A) Direct labor cost variance = (Actual cost - Standard cost) x Actual quantity
Actual direct labor cost per hour = $375,000 / 30,000 per hours = $12.50 per hour
Direct labor cost variance = ($12.50 - $14 ) x 30,000 hours = $45,000 Favorable