Question

Exercise 10-2 Direct Labor Variances [LO10-2]

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 6,600 of these meals using 1,950 direct labor-hours. The company paid its direct labor workers a total of $27,300 for this work, or $14.00 per hour.

According to the standard cost card for this meal, it should require 0.30 direct labor-hours at a cost of $13.00 per hour.

Required:

1. What is the standard labor-hours allowed (SH) to prepare 6,600 meals?

2. What is the standard labor cost allowed (SH × SR) to prepare 6,600 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

Answer 1.

Number of meals = 6,600
Standard labor-hour per meal = 0.30

Standard labor-hours allowed = Number of meals * Standard labor-hour per meal
Standard labor-hours allowed = 6,600 * 0.30
Standard labor-hours allowed = 1,980

Answer 2.

Standard labor-hours allowed = 1,980
Standard cost per labor-hour = $13.00

Standard labor cost = Standard labor-hours allowed * Standard cost per labor-hour
Standard labor cost = 1,980 * $13.00
Standard labor cost = $25,740

Answer 3.

Labor Spending Variance = Actual Labor Cost - Standard labor cost
Labor Spending Variance = $27,300 - $25,740
Labor Spending Variance = $1,560 Unfavorable

Answer 4.

Labor Rate Variance:

Labor Rate Variance = Actual labor-hours * (Actual cost per hour - Standard cost per hour)
Labor Rate Variance = 1,950 * ($14.00 - $13.00)
Labor Rate Variance = $1,950 Unfavorable

Labor Efficiency Variance:

Labor Efficiency Variance = Standard cost per hour * (Actual labor-hours - Standard labor-hours)
Labor Efficiency Variance = $13.00 * (1,950 - 1,980)
Labor Efficiency Variance = $390 Favorable