Question

SkyChefs, Inc., prepares in-flight meals for a number of major airlines. One of the company’s products is grilled salmon in dill sauce with baby new potatoes and spring vegetables. During the most recent week, the company prepared 4,800 of these meals using 1,400 direct labor-hours. The company paid these direct labor workers a total of $18,200 for this work, or $13.00 per hour.

According to the standard cost card for this meal, it should require 0.30 direct labor-hours at a cost of $12.50 per hour.

   
Required:

1. According to the standards, what direct labor cost should have been incurred to prepare 4,800 meals? How much does this differ from the actual direct labor cost? (Round labor-hours per meal and labor cost per hour to 2 decimal places.)

Number of meals prepared
Standard direct labor-hours per meal
Total direct labor-hours allowed
Standard direct labor cost per hour
Total standard direct labor cost
Actual cost incurred
Total standard direct labor cost
Total direct labor variance

2. Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

Labor rate variance
Labor efficiency variance

Answer 1

1.According to the standards, what direct labor cost should have been incurred to prepare 4,800 meals? How much does this differ from the actual direct labor cost?
a	Number of meals prepared			4,800
b	Standard direct labor-hours per meal			0.30	hours
c	Total direct labor-hours allowed (a*b)			1,440	hours
d	Standard direct labor cost per hour			$                        12.50
e	Total standard direct labor cost (c*d) i.e. Direct labor cost that should have been incurred to prepare 4,800 meals			$                     18,000
f	Actual direct labor cost incurred			$                      18,200
g	Total direct labor variance (f-e)			$                           200	Unfavorable
2. Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)
Direct labor rate variance :-
Direct labor rate variance	=	Actual labor hours	× (	Actual Rate	-	Standard Rate	)
	=	1400	× (	13.00	-	12.50	)
	=	1400	×	0.50
	=	$700		Unfavorable
Direct labor Efficiency Variance :-
Direct labor Efficiency Variance	=	Standard Rate	× (	Actual labor hours	-	Standard labor hours	)
	=	12.50	× (	1400	-	4800*0.30	)
	=	12.50	× (	1400	-	1440	)
	=	12.50	×	-40
	=	-$500		Favorable
Total Direct labor Cost variance :-
Total Direct labor Cost variance	=	Direct labor rate variance	+	Direct labor Efficiency Variance
	=	$700	+	-$500
	=	$200		Unfavorable

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