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 4,000 of these meals using 960 direct labor-hours. The company paid its direct labor workers a total of $19,200 for this work, or $20.00 per hour.

According to the standard cost card for this meal, it should require 0.25 direct labor-hours at a cost of $19.75 per hour.

Required:

1. What is the standard labor-hours allowed (SH) to prepare 4,000 meals?

2. What is the standard labor cost allowed (SH × SR) to prepare 4,000 meals?

3. What is the labor spending variance?

4. What is the labor rate variance and the labor efficiency variance?

(For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do no round intermediate calculations.)

1.	Standard labor-hours allowed
2.	Standard labor cost allowed
3.	Labor spending variance
4.	Labor rate variance
	Labor efficiency variance

Answer 1

1) Standard labour hours allowed = Standard hours per mean x no. of meals = 0.25 hours x 4000 = 1000 hours

2) Standard labour cost allowed = total standard hours allowed x standard cost per hour = 1000 hours x $19.75 per hour = $19,750

3) Labour spending variance = Standard cost allowed - Actual cost incurred = $19,750 - $19,200 = $550 (F)

4) Labour rate variance = (Standard rate per hour - Actual rate per hour) x actual no. of hours

or, Labour rate variance = ($19.75 - $20) x 960 = $240 (U)

Labour efficiency variance = (Standard hours allowed - actual hours taken) x standard rate per hour

or, Labour efficiency variance = (1000 hours - 960 hours) x $19.75 per hour = $790 (F)

Also, if you are ever in doubt whether your answer for rate and efficiency variance is correct or not, just remember that if you add both, you will get the spending variance.

Labour spending variance = Labour rate variance + Labour efficiency variance = $240 (U) + $790 (F) = $550 (F)