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 4,800 of these meals using 1,400 direct labor-hours. The company paid its direct labor workers a total of $18,200 for this work, or $13.00 per hour.

According to the standard cost card for this meal, it should require 0.30 direct labor-hours at a cost of $12.50 per hour.

Required:

1. What is the standard labor-hours allowed (SH) to prepare 4,800 meals?

2. What is the standard labor cost allowed (SH × SR) to prepare 4,800 meals?

3. What is the labor spending variance?

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

Answer 1

Answer:

1. Standard labour hours allowed to prepare 4,800 meals

= 4,800 meals x 0.30 direct labour hours

= 1,440 hrs.

2. Standard labour cost allowed (SH × SR) to prepare 4,800 meals

= Standard Hours X Standard rate

= 1,440 hrs. x $12.50 Per Hours

= $18,000

3. Labour Spending Variance = (Standard hrs x Standard Rate - Actual hrs. x Actual Rate)

= (1,440 hrs. x $12.50) - (1400 hrs x $13.00)

= $200 (Unfavourable)

4. Labour Rate Variance = (Standard rate - Actual rate ) x Actual hrs

= ($12.50 - $13.00) x 1,400 hrs.

= $700 (Unfavourable)

Labour Efficiency Variance = (Standard hrs - Actual hrs ) x Standard rate

= (1,440 hrs - 1,400 hrs) x $12.50

= $500 (Favourable)