Question

Direct Labor Variances for a Service Company

Mexicali On the Go Inc. owns and operates food trucks (mobile kitchens) throughout the west coast. The company’s employees have varying wage levels depending on their experience and length of time with the company. Employees work 8-hour shifts and are assigned to a truck each day based on labor needs to support the daily menu. One of its trucks, Donna’s Mobile Fiesta offers a single menu item that changes daily. On May 6, the truck prepared 70 of its most popular item, the Breakfast Enchilada. The following data are available for that day:

Quantity of direct labor used	16 hrs.
(2 employees, working 8-hour shifts)
Actual rate for direct labor	$15.40 per hr.
Standard direct labor per meal	0.2 hr.
Standard rate for direct labor	$16.00 per hr.

a. Determine the direct labor rate variance, direct labor time variance, and total direct labor cost variance. Enter a favorable variance as a negative number using a minus sign and an unfavorable variance as a positive number. Round your answers to two decimal places.

Direct Labor Rate Variance	$
Direct Labor Time Variance	$
Total Direct Labor Cost Variance	$

b. Discuss what might have caused these variances.

Answer 1

The answer has been presented in the supporting sheet. All the parts has been solved with detailed explanation and format. For detailed answer refer to the supporting sheet.

A. E F 1 Answer 2 Part a) 3 Direct Labor Rate Variance (actual Rate standard Rate)*actual hours 4(15.4-16) 16 - - $ 9.6 Favourable 5 6 7 Direct Labor Time Variance (actual hours standard hours) standard Rate 8(16-(.2*70))*16 9$32 Unfavourable 10 11 Total direct labor cost variance actual cost standard cost 12 (16 15.4)-.2*70*16) 13 $22.4 unfavourable 14 -$9.6 Favourable $32.0 Unfavourable $22.4 Unfavourable 15 Direct Labor Rate Variance 16 Direct Labor Time Variance 17 Total Direct Labor Cost Variance 18 19 Part b) Direct labor variance has been arisen due to hiring of employees at lower rate than standard rate due to which it has arisen into favourable variance. Where as direct labor time variance is unfavourable because they has used more ime than standard due to which their is unfavourable variance. Total direct labor variance has arisen due to combine effect of both the variance mentioned above. 20 21.