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 5,600 of these meals using 2,700 direct labor-hours. The company paid its direct labor workers a total of $21,600 for this work, or $8.00 per hour. According to the standard cost card for this meal, it should require 0.50 direct labor-hours at a cost of $7.50 per hour. Required:

1. What is the standard labor-hours allowed (SH) to prepare 5,600 meals?

2. What is the standard labor cost allowed (SH × SR) to prepare 5,600 meals?

3. What is the labor spending variance?

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

Answer 1

Answer 1.

Number of meals prepared = 5,600
Standard labor hour per meal = 0.50

Standard labor-hours allowed = Number of meals prepared * Standard labor hour per meal
Standard labor-hours allowed = 5,600 * 0.50
Standard labor-hours allowed = 2,800

Answer 2.

Standard labor-hours allowed = 2,800
Standard labor-hour cost = $7.50

Standard labor cost allowed = Standard labor-hours allowed * Standard labor-hour cost
Standard labor cost allowed = 2,800 * $7.50
Standard labor cost allowed = $21,000

Answer 3.

Labor Spending Variance = Actual direct labor cost - Standard labor cost allowed
Labor Spending Variance = $21,600 - $21,000
Labor Spending Variance = $600 Unfavorable

Answer 4.

Labor Rate Variance = Actual direct labor hours * (Actual direct labor rate - Standard direct labor rate)
Labor Rate Variance = 2,700 * ($8.00 - $7.50)
Labor Rate Variance = $1,350 Unfavorable

Labor Efficiency Variance = Standard direct labor rate * (Actual direct labor hours - Standard direct labor hours)
Labor Efficiency Variance = $7.50 * (2,700 - 2,800)
Labor Efficiency Variance = $750 Favorable