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; $15 per hour Emerald produced 5,000 units during the quarter. At the end of the quarter, an examination of tlie labor costs records showed that the company used 25,000 direct labor hours and actual total direct labor costs were $375,000. The direct labor efficiency variance was $75,000 U. Which of the following would be a logical explanation for this variance? The company paid a higher price for the materials than allowed by the standards. The company used a higher quantity of materials than allowed by the standards. The company used more labor hours than allowed by the standards. The company paid a higher rate for labor than allowed by the standards.

Explanation / Answer

The company used more hours than allowed by the standards Direct Labour Efficiency Variance = 75,000 U It means Company used more quantity than standard since DLEV = (SH-AH)SR If the result of above is negative then it means Actual hours are more than standard

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