Question

Matt's Eat 'N Run has two categories of direct labor: unskilled, which costs $20 per hour, and skilled, which costs $34 per hour. Management has established standards per "equivalent friendly meal," which has been defined as a typical meal consisting of a hamburger, a drink, and french fries. Standards have been set as follows:

Skilled labor 2 minutes per equivalent meal

Unskilled labor 6 minutes per equivalent meal

For the year, Matt’s sold 198,000 equivalent friendly meals and incurred the following labor costs:

Skilled labor 6,600 hours $ 230,800

Unskilled labor 11,500 hours 260,200

Required:

A. Compute labor price and efficiency variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

B. Compute labor mix and yield variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

A). Labour Price Variance = Std cost for Actual hrs - Actual cost
Skilled = 6600*34 - 230800 = 224400 - 230800 = 6400 U
Unskilled = 11500*20 - 260200 = 30200 U
TOTAL = 30200 +6400 = 36600 U

Labour Efficiency Variance = (Std hrs - Actual hrs)*Std rate
Std hrs for skilled labour = 198000* 2 min/ 60 min = 6600 hrs
Std hrs for unskilled labour = 198000 * 6 min/60 min = 19800 hrs
Skilled = (6600 hrs - 6600 hrs) * 34 = 0
Unkilled = (19800 hrs - 11500 hrs) * 20 = 166000 F
TOTAL = 166000 + 0 =166000 F

Labour mix Variance = Total Actual time worked * (Average std rate per hour of std gand - Average std rate per hour of actual gang)
Actual time worked = 11500+6600 = 18100 hrs
Std time = 6600 + 19800 = 26400 hrs
Average std rate per hour of std gang = ((6600 * 34) + (19800*20))/ (6600+19800)
= (224400 + 396000)/ 26400 = 23.5
Here Std hrs for actual production used along with std rate and then divided by total std hrs for actual production.
Average std rate per hour of actual gang = ((6600*34) + (11500*20))/18100
= (224400 + 230000)/ 18100 = 25.105
Here Actual hrs used along with std rate and then divided by total actual hrs.

LAbour mix variance = 18100(23.5 - 25.105) = 29050 U

Labour Yeild Variance = Average std rate per hour of std gang * (Total Std time - Actual time)
= 23.50* (26400 - 18100) = 195050 F