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; $20 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. Calculate the direct labor cost variance.

$125,000 F

$300,000 F

$300,000 U

$125,000 U

$125,000 F

$300,000 F

$300,000 U

$125,000 U

Explanation / Answer

Direct labour cost variance = (Standard rate-actual rate)actual hours

                                       = (20*25000)-375000

Direct labour cost variance = 125000 F

So answer is a) $125000 F

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