Allen Boating Company manufactures special metallic materials and decorative fit

Question

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: 2 hours per unit; $18 per hour Allen produced 2,000 units during the quarter. At the end of the quarter, an examination of the direct materials records showed that the company used 6,500 pounds of direct materials and actual total materials costs were $99,600. What is the direct materials efficiency variance?

Explanation / Answer

Direct materials efficiency variance = (Actual quantity - Standard quantity) × Standard cost

Direct materials efficiency variance = (6,500 pounds - 2,000 pounds) × $11 per pound = $49,500 Unfavorable

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