Seaworthy Designs manufactures special metallic materials and decorative fittings for luxury yachts that require highly skilled labor. Seaworthy 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; $6 per pound Direct labor: 2 hours per unit; $19 per hour During the first quarter, Seaworthy produced 2,000 units of this product. Actual direct materials and direct labor costs were $66,000 and $326,000, respectively. For the purpose of preparing the flexible budget, what is the total standard direct labor cost at a production volume of 2,000 units?

If we are going to prepare a flexible budget we need to calculate how much Seaworthy should have spent in labor costs in order to produce 2,000 units:

labor cost = 2 hours per unit x $19 per hour x 2,000 units = $76,000

If we compare the flexible budget to Seaworthy's actual costs, we will find an unfavorable variance of $250,000 (=$326,000 - $76,000). Obviously something went wrong with Seaworthy's production.