Question

A new factory manager was hired for a company that was experiencing slow production rates and lower production volumes than demanded by management. Upon​investigation, the manager found that the workers were poorly motivated and not closely supervised. Midway through the​ quarter, an incentive program was​ initiated, and cash bonuses were given when workers hit their production targets. Within a short​ time, production output​ increased, but the bonuses had to be charged to the direct labor​ budget, and the manager was worried about the impact of these costs on operating income. This could produce​ a(n) ________.

A. unfavorable direct labor efficiency variance
B. unfavorable direct materials cost variance
C. unfavorable direct labor cost variance
D. unfavorable direct materials efficiency variance

Answer 1

C. unfavorable direct labor cost variance

Step-by-step explanation:

The payment of cash bonuses would result in an unfavorable direct labor cost variance

. The Direct labor cost variance is unfavorable if the actual cost per hour is higher than the standard cost which in this question is as a result of bonuses charged to the direct labor budget. In other word, the factory paid more per hour of labor than what it has estimated