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 7,000 of these meals using 2,700 direct labor-hours. The company paid these direct labor workers a total of $27,000 for this work, or $10.00 per hour.

     According to the standard cost card for this meal, it should require 0.40 direct labor-hours at a cost of $9.30 per hour.

   

Required:
1.	According to the standards, what direct labor cost should have been incurred to prepare 7,000 meals? How much does this differ from the actual direct labor cost? (Round labor-hours per meal and labor cost per hour to 2 decimal places.)

      

2.	Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

     

Answer 1

1.

Standard direct labor cost = 7,000 meals * 0.4 direct labor hours per meal * $9.3 per hour

= $26,040

Labor variance = Actual cost - Standard cost

= $27,000 - $26,040

= $960 Unfavorable

2.

Labor rate variance = (Actual hours * Actual rate) - (Actual hours * Standard rate)

= $27,000 - (2,700 * $9.3)

= $27,000 - $25,110

= $1,890 Unfavorable

Labor efficiency variance = (Actual hours * Standard rate) - (Standard hours * Standard rate)

= (2,700 * $9.3) - [(7,000 * 0.4) * $9.3]

= $25,110 - $26,040

= $930 Favorable