Pierce Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor
Pierce 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: 3 pounds per unit; $4 per pound
Direct labor: 5 hours per unit; $16 per hour
Pierce 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 $372,000. What is the direct labor efficiency variance?
A) $80,000 U
B) $80,000 F
C) $28,000 F
D) $28,000 U
A .A) Direct labor efficiency variance = (Actual quantity - Standard quantity) x Standard cost
Standard quantity = 5 direct labor hours x 5,000 units = 25,000 direct labor hours
Direct labor efficiency variance = (30,000 direct labor hours - 25,000 direct labor hours) x $16 per direct labor hour
Direct labor efficiency variance = $80,000 Unfavorable
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