Question

Argosy Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Argosy uses standard costs to prepare its flexible budget. For the first quarter of the year, direct materials and direct labor standards for one of their popular products were as follows: Direct materials: 4 pounds per unit; $3 per pound Direct labor: 4 hours per unit; $17 per hour Argosy produced 5000 units during the quarter. At the end of the quarter, an examination of the labor costs records showed that the company used 21,000 direct labor hours and actual total direct labor costs were $380,000. The direct labor efficiency variance was $17,000 U. Which of the following is a logical explanation for this variance?

A. The company paid a higher cost for the direct materials than allowed by the standards.
B. The company paid a higher cost per hour for labor than allowed by the standards
C. The company used more labor hours than allowed by the standards.
D. The company used a higher quantity of direct materials than allowed by the standards

Answer 1

The correct answer is option (c) the company used more labor hours than allowed by the standards.

Step-by-step explanation:

The efficiency of direct labor difference tells that how efficiently direct labor has worked. If it is not favorable, it suggest that direct labor has used more labor hours than permitted by standard.

In this example given, the question direct labor difference or variance is unfavorable 17000U, it means that, direct labor was done inefficiently and has used 1000 hrs (21000-2000)more than normal standard practice or way.