Question

ch 8 exerc #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 4,000 of these meals using 750 direct labor-hours. The company paid these direct labor workers a total of $6,000 for this work, or $8.00 per hour.

     According to the standard cost card for this meal, it should require 0.20 direct labor-hours at a cost of $7.00 per hour.

   

Required:
a.	According to the standards, what direct labor cost should have been incurred to prepare 4,000 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.)

Number of meals prepared
Standard direct labor-hours per meal
Total direct labor-hours allowed
Standard direct labor cost per hour
Total standard direct labor cost
Actual cost incurred
Total standard direct labor cost
Total direct labor variance	$0

b. 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).)

Labor rate variance
Labor efficiency variance

Answer 1

Answer for a)

Number of meals prepared	4000 meals
Standard direct labour hours per meal	0.20 hours
Total direct labour hours allowed (4000 meals×0.2 hours)	800 hours
Standard direct labour cost per hours	$7
Total standard direct labour cost (800 hours×$7)	$5600
Actual cost incurred	$6000
Total standard direct labour cost	$5600
Total direct labour variance	$400 unfavorable

Answer for b)

Labour rate Variance:

(Standard rate-actual rate)×actual hours

($7-$8)×750 hours

=$750 U

Labour efficiency Variance:

(Standard hours-actual hours)×standard rate

(800 hours-750 hours)×$7

$350 F