Emerald Marine Stores Company manufactures decorative fittings for luxury yachts

Question

Emerald Marine Stores Company manufactures decorative fittings for luxury yachts that require highly skilled labor, and special metallic materials. Emerald uses standard costs to prepare its flexible budget. For the first quarter of 2015, direct material and direct labor standards for one of their popular products were as follows: Direct materials: 3 pounds per unit; $4 per pound Direct labor: 4 hours per unit; $15 per hour Emerald 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 25,000 direct labor hours and actual total direct labor costs were $375,000. How much is the direct labor efficiency variance? $300,000 F $300,000 U

Explanation / Answer

Direct Labour Efficiency Variance = (Actual hours worked - standard hours required for actual output) * standard rate

Actual hours worked = 25000 hours standard hours for actual output = 5000 units * 4 hours per unit = 20000 hours Standard direct labour hour rate = $15 per hour Therefore, Direct labour efficiency variance = (25000 hours - 20000 hours) * $15 per hour = $75000 unfavourable

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