Allen Boating Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Allen 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: 1 pound per unit; $11 per pound
Direct labor: 4 hours per unit; $19 per hour
Allen produced 4000 units during the quarter. At the end of the quarter, an examination of the direct materials records showed that the company used 7500 pounds of direct materials and actual total materials costs were $99,300.
What is the direct materials efficiency variance?
A) $44,000 U
B) $38,500 U
C) $44,000 F
D) $38,500 F
B) $38,500 U
Explanation: Direct materials efficiency variance = (Actual quantity - Standard quantity) × Standard cost
Direct materials efficiency variance = (7500 pounds - 4000 pounds) × $11 per pound = $38,500 Unfavorable
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