Question

Sky Inc. provides in-flight meals for a number of major airlines. Qne of the.company's productsin stutedcanneloni withroasted pepper sauce. tresh baby.com andspring salad. During the most recent week, the company prepared 6,000 of these meals, using 1,150 direct labour-hours. The company paid these direct labour workers a total of $11,500 for this work, or $10 per hour According to the standard cost card for this meal, it should require 0.20 direct labour- hours at a cost of $9.50 per hour. Required: 1. What direct labour cost should have been incurred to prepare 6,000 meals? How much does this differ from the actual direct labour cost? 2. Break down the difference computed in (1) above into a labour rate variance and a labour efficiency variance.

Answer 1

Answer 1.

Number of meals produced = 6,000
Standard direct-labour hours per meal = 0.20
Standard Cost per direct-labour hours = $9.50

Standard direct-labour hours = Number of meals produced * Standard direct-labour hours per meal
Standard direct-labour hours = 0.20 * 6,000
Standard direct-labour hours = 1,200

Standard direct-labour cost = Standard direct-labour hours * Standard Cost per direct-labour hours
Standard direct-labour cost = 1,200 * $9.50
Standard direct-labour cost = $11,400

Direct Labour Variance = Actual direct-labour cost - Standard direct-labour cost
Direct Labour Variance = $11,500 - $11,400
Direct Labour Variance = $100 Unfavourable

Answer 2.

Direct Labour Efficiency Variance = Actual direct-labour hours * Standard Cost per direct-labour hours - Standard direct-labour cost
Direct Labour Efficiency Variance = 1,150 * $9.50 - $11,400
Direct Labour Efficiency Variance = $475 Favourable

Direct Labour Rate Variance = Actual direct-labour Cost - Actual direct-labour hours * Standard Cost per direct-labour hours
Direct Labour Rate Variance = $11,500 - 1,150 * $9.50
Direct Labour Rate Variance = $575 Unfavourable