Question

Seakist marine stores company manufactures decorative fittings for luxury yachts, which require highly skilled labor, and special metallic materials. Seakist uses standard costs to prepare its flexible budget. For the first quarter of the current year, direct materials and direct labor standards for one of their popular products were as follows: direct materials: 1.5 pounds per unit; $4 per pound. Labor: 2 hours per unit; $18 per hour. During the first quarter, Seakist produced 5,000 units of this product. At the end of the quarter, an examination of the direct materials records revealed that the company used 7,000 pounds of direct materials. The direct materials efficiency variance was $2,000 f. Which of the following is a logical explanation for this variance?

1) The company used lower quality materials than the standard
2) The company used more materials than the standard
3) The company used higher quality materials than the standard
4) The company used the standard amount of materials

Answer 1

The $2,000 favorable direct materials efficiency variance likely indicates that Seakist Marine Stores Company used more efficient production methods or lower quality materials which cost less than the standard, causing a favorable variance.

Step-by-step explanation:

The direct materials efficiency variance for Seakist Marine Stores Company indicates the difference between the actual quantity of materials used and the expected quantity of materials based on the standard costs. Given that 7,000 pounds of material were used versus the standard of 7,500 pounds (5,000 units at 1.5 pounds each), and the efficiency variance was $2,000 favorable (indicated by the "f"), the logical explanation here could be that the company used more efficient production methods or possibly benefited from lower quality materials that were still adequate for production needs but cost less than the standard. It is not possible for options 3 or 4 to be correct, as using higher quality materials would typically result in a negative variance, and using the standard amount of materials would result in no variance at all.