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 6,300 of these meals using 1,800 direct labor-hours. The company paid these direct labor workers a total of $18,000 for this work, or $10.00 per hour.

     According to the standard cost card for this meal, it should require 0.30 direct labor-hours at a cost of $9.20 per hour.

   

Required:
1.	According to the standards, what direct labor cost should have been incurred to prepare 6,300 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

Actual Production

6300

Units

Standard cost for actual production	Actual Cost for Actual Production
Hrs	Rate/ hr	cost	Hrs	rate	cost
1890	9.2	17388	1800	10	18000
(0.3 hrs x 6300 units)		(1890 x 9.2)	(18000/ 10)

Labor Cost according to standards for 6300 meals	17388
Difference from Actual Cost	-612 (17388 -18000)	Unfavorable Direct Labor Cost Variance

Labo Rate Variane	Actual hours x (Standard Rate - Actual Rate	-1440 (Unfavoravble)	[1800 x (9.2 - 10)]
Labor Efficiency Variance	Standard Rate (Standard Hours - Actual Hours)	828 (Favorable)	[9.2 x (1890 - 1800)]