Emerald Marine Stores Company manufactures decorative fittin

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?

Select one:

A. $300,000 U

B. $75,000 U

C. $75,000 F

D. $300,000 F

Solution

we have given

Emerald produced 5,000 units during the quarter

Direct labor: 4 hours per unit; $15 per hour

and it is given that company is preparing the flexible budget

so, the total standard direct labor cost at a production volume of 5,000 units = 5000*4*15

the total standard direct labor cost at a production volume of 5,000 units = $300,000

since, this labour cost is less than $325,000

so, this would be favourable for the company

so, direct labor efficiency variance is $300,000 F (option-D).........Answer