Question

Sky Chefs, Inc, prepares in-flight meals for a number of major airlines. One of the company's products is grilled salmon in oil sauce with baby new potatoes and spring vegetables During the most recent week, the company prepared 6.500 of these meals ng 3200 direct labor hours The company paid these direct Labor workers 10 of $35 900 for this workor $1150 per hour According to the standard costcard for this me thou daquie 0 50 dired labor hours at a cost of $11.00 per hour Required: According to the standards what direct bor cost should have been incurred to prepare 6.500 meals? How much does this after from the actual direct labor cost Round Labor hours per meal and labor cost per hour 10 2 decimal places Number of meals prepared Standard direct labor hours per meat Total direct labor-hours lowed Standard direct labor cost per hour Total Standard direct labor cost Actos incurred Total standard direct labor cost Total dret tabor vanane Par dan the comput Wananchi ch and one for effect zero variance a bora yanada con o rar Lorate verance L ancarance

Answer 1

REQUIREMENT 1

Number of meals prepared	6,500.00	a
Standard direct labor-hours per meal	0.50	b
Total direct labor-hours allowed	3,250.00	c = a × b
Standard direct labor cost per hour	$          11.00	d
Total standard direct labor cost	$ 35,750.00	e = c × d
Actual cost incurred	$ 36,800.00	f
Total standard direct labor cost	$ 35,750.00	g
Total direct labor variance	$    1,050.00	f - g

• $1,050 unfavorable variance.
• Labor cost variance is the difference in actual labor cost incurred and standard labor cost allowed.
• Labor cost variance = Standard cost allowed - Actual cost incurred
  • or (SH × SR) - (AH × AR)
    • SH: Standard hours allowed
    • SR: Standard rate per labor hour
    • AH: Actual hours used
    • AR: Actual rate paid per hour
  • In other words, Labor cost variance is the difference between Standard labor cost allowed and actual labor cost incurred.
• Labor cost variance can arise due to difference in labor cost rate or labor hours used from the specified standards.
• i.e. Labor cost variance can be divided into:
  • Labor rate variance
  • Labor efficiency variance
  • Labor idle time variance

REQUIREMENT 2

Actual direct labor hours used	3,200.00	a
Standard direct labor cost per hour	$          11.00	b
Standard direct labor cost of actual direct labor hours used	$ 35,200.00	c = a × b
Actual direct labor hours used	3,200.00	d
Actual direct labor cost per hour	$          11.50	e
Actual direct labor cost	$ 36,800.00	f = d × e
Labor rate variance	$ (1,600.00)	c - f

• $1,600 unfavorable variance.
• Labor rate variance arises due to difference in actual rate paid from standard rate allowed.
• Labor rate variance = Standard cost allowed for actual time used - Actual cost
  • or AH × (SR - AR)
  • or (SR × AH) - (AR × AH)
    • AH: Actual hours used and paid for
    • SR: Standard rate per hour
    • AR: Actual rate paid per hour
  • Simply, Labor rate variance is the difference between the Standard Rate per hour and Actual Rate per hour for the actual hours used and paid for.

Number of meals prepared	6,500.00	a
Standard direct labor-hours per meal	0.50	b
Total standard direct labor-hours allowed	3,250.00	c = a × b
Standard direct labor cost per hour	$          11.00	d
Standard direct labor cost of standard time used for actual production	$ 35,750.00	e = c × d
Actual direct labor hours used	3,200.00	f
Standard direct labor cost per hour	$          11.00	g
Standard cost of actual time	$ 35,200.00	h = f × g
Labor efficiency variance	$        550.00	e - h

• $550 favorable variance.
• Labor efficiency variance is due to the difference in actual working hours and standard working hours allowed.
• Labor efficiency variance = Standard cost of standard time for actual production - Standard cost of actual time used
  • or SR × (SH - AH)
  • or (SH × SR) - (AH × SR)
    • SR: Standard labor cost rate
    • SH: Standard hours allowed
    • AH: Actual hours used
  • In other words, Labor efficiency variance is the difference between the Standard Hours allowed for actual production and Actual hours used at standard rate.