Question

Golden Marine Stores Company manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Golden 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: 3 pounds per​ unit; $3 per pound

​Labor: 4 hours per​ unit; $24 per hour

During the first​ quarter, Golden produced​ 5,000 units of this product. At the end of the​ quarter, an examination of the direct materials records showed that the company used​ 14,500 pounds of direct materials and the direct materials cost variance was​ $3,840 U. Which of the following is a logical explanation for this​ variance?

A.

The company used a greater quantity of direct materials than allowed by the standards.

B.

The company paid a higher cost for the direct materials than allowed by the standards.

C.

The company paid a higher cost per hour for labor than allowed by the standards.

D.

The company used more labor hours than allowed by the standards.

Answer 1

Standard quantity of materials allowed for actual production = 5000*3 = 15000

The company used​ 14,500 pounds of direct materials so the company used a lesser quantity of direct materials than allowed by the standards.

As the Direct materials cost variance is U(unfavorable), it is due to higher price paid not due to greater quantity of direct materials used.

The unfavorable Direct materials cost variance indicates that the company paid a higher cost for the direct materials than allowed by the standards.

Option B is correct