Question

Matt's Eat 'N Run has two categories of direct labor: unskilled, which costs $10 per hour, and skilled, which costs $20 per hour. Management has established standards per "equivalent friendly meal," which has been defined as a typical meal consisting of a hamburger, a drink, and french  fries. Standards have been set as follows.

 

Skilled labor	2	minutes per equivalent meal
Unskilled labor	6	minutes per equivalent meal

 

For the year, Matt’s sold 180,000 equivalent friendly meals and incurred the following labor costs.

 

Skilled labor	6,000	hours		$	125,000
Unskilled labor	15,000	hours			240,000

 

Required:
a. Compute labor price and efficiency variances.
b. Compute labor mix and yield variances.

Answer 1

A) 

Skilled:
(AP × AQ) = $125,000
(SP × AQ) = $20 × 6,000 = $120,000
Labor price variance: $120,000 – $125,000 = $5,000 U

Labor efficiency variance: $120,000 – $120,000 = $0 None

Unskilled:
(AP × AQ) = $240,000
(SP × AQ) = $10 × 15,000 = $150,000
Labor price variance: $150,000 – $240,000 = $90,000 U

Labor efficiency variance: $180,000 – $150,000 = $30,000 F

Total
(AP × AQ) = $365,000
(SP × AQ) = $270,000
Labor price variance: $270,000 – $365,000 = $95,000 U

Labor efficiency variance: $300,000 – $270,000 = $30,000 F

                                       

                                         Skilled                          Unskilled                    Total

Labor price variance       5,000 U                         90,000U                95,000U  Labor efficiency variance                                       30,000F                30,000F

B) 

Skilled:
(SP × ASQ) = $20 × (0.25 × 21,000) = $20 × 5,250 = $105,000
(SP × SQ) = $20 × (2/60 × 180,000) = $20 × 6,000 = $120,000
Labor mix variance: $105,000 – $120,000 = $15,000 U
Labor yield variance: = $120,000 – $105,000 = $15,000 F

Unskilled:
(SP × ASQ) = $10 × (0.75 × 21,000) = $10 × 15,750 = $157,500
(SP × SQ) = $10 × (6/60 × 180,000) = $10 × 18,000  = $180,000
Labor mix variance: $157,500 – $150,000 = $7,500 F
Labor yield variance: = $180,000 – $157,500 = $22,500 F

Total:
(SP × ASQ) = $262,500
(SP × SQ) = $300,000
Labor mix variance: $262,500 – $270,000 = $7,500 U

Labor yield variance: $300,000 – $262,500 = $37,500 F

Skilled		Unskilled		Total
Labor mix variance	$15,000	U	$7,500	F	$7,500	U
Labor yield variance	$15,000	F	$22,500	F	$37,500	F