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 3,400 of these meals using 1,300 direct labor-hours. The company paid its direct labor workers a total of $16,900 for this work, or $13.00 per hour.

According to the standard cost card for this meal, it should require 0.40 direct labor-hours at a cost of $12.00 per hour.

Required:

1. What is the standard labor-hours allowed (SH) to prepare 3,400 meals?

2. What is the standard labor cost allowed (SH × SR) to prepare 3,400 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.)

Answer 1

Solution

SkyChefs Inc

1. Determination of standard labor hours allowed to prepare 3,400 meals:

Standard labor hours – SH

SH = 3,400 meals x o.40 DLH = 1,360 DLH

2. Standard labor cost allowed to prepare 3,400 meals:

Standard labor cost = SH x SR

Standard rate, SR = $12 per hour

SH = 1,360

Standard labour cost = 1,360 x $12 = $16,320

3. Labor spending variance –

Labor spending variance = total labor cost – total standard cost

Total actual labor cost = $16,900

Standard labor cost = $16,320

Labor spending variance = 16,900 – 16,320 = $580 U

The labor spending variance is unfavourable as the total actual labor cost is higher than the estimated labor cost.

4. Labor rate variance and labor efficiency variance:

labor rate variance = AH x (AR – SR)

= actual hours x (actual rate per labor hour – standard rate per labor hour)

Actual hours = 1,300 DLH

Actual rate =$13 per DLH

Standard rate = $12 per DLH

Labor rate variance = 1,300 x ($13 - $12)

Labor rate variance = $1,300 U

The labor rate variance is unfavourable as the actual rate per hour is higher than the standard rate per hour.

Labor efficiency variance –

Labor efficiency variance = SR x (actual labor hours – standard labor hours)

= SR x (AH – SH)

SR = $12 per hour

Actual hours = 1,300

Standard hours = 1,360

Labor efficiency variance = $12 x (1,300 – 1,360) = 720 F

The labor efficiency variance is favourable as the actual labor hours used is lower than the standard labor hours.