Lee Maritime Company manufactures special metallic materials and decorative fitt

Question

Lee Maritime Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. 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: 22 pounds per unit;$3 per pound

Direct labor: 55 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 25,000 direct labor hours and actual total direct labor costs were $325,000. What is the direct labor cost variance? (Round any intermediate calculations to the nearest cent, and your final answer to the nearest dollar.)

A. $25,000 Unfavorable

B. $25,000 Favorable

C.$350,000 Unfavorable

D. $350,000 Favorable

Explanation / Answer

Standard Direct Labor hour rate = $14 per hour

Actual Direct Labor Cost = $325000

Actual Direct Labor Hours = 25000 hours

Actual Direct Labour Rate = 325000/ 25000 = $13 per hour

Direct Labor Cost Variance = (Standard Rate - Actual Rate) x Actual hours

= (14-13) x 25000

= $25000 Favorable

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