The production manager of a company in an effort to gain a p

The production manager of a company, in an effort to gain a promotion, negotiated a new labor contract with her factory employees that required them to bear a greater percentage of benefit costs than before, thus bringing down the cost of direct labor to the company. Shortly afterward, several experienced and highly skilled workers resigned, and were replaced by new employees whose work was very slow during their training period. At the end of the quarter, the company\'s profits fell 10%. This situation would have produced a(n):

Select one:

A. favorable direct materials cost variance.

B. unfavorable direct labor efficiency variance.

C. unfavorable direct labor cost variance.

D. favorable direct materials efficiency variance.

Solution

B.unfavorable direct labor efficiency variance.

As new workers took more amount of time than experienced and highly skilled workers who resigned and this variance is known as unfavorable direct labor efficiency variance.