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 7,200 of these meals using 2,800 direct labor-hours. The company paid its direct labor workers a total of $22,400 for this work, or $8.00 per hour.

According to the standard cost card for this meal, it should require 0.40 direct labor-hours at a cost of $7.50 per hour.

Required:

1. What is the standard labor-hours allowed (SH) to prepare 7,200 meals?

2. What is the standard labor cost allowed (SH × SR) to prepare 7,200 meals?

3. What is the labor spending variance?

4. What is the labor rate variance and the labor efficiency variance?

Answer 1

Ans. 1	Standard direct labor hours = Actual production * Standard hours allowed per unit
	7,200 meals * 0.40 hours per meal
	2,880 hours
Ans. 2	Standard labor cost allowed = Standard direct labor hours allowed * Standard rate
	2,880 * $7.50
	$21,600
Ans. 3	Labor spending variance = Standard labor cost - Actual labor cost
	$21,600 - $22,400
	-$800	or   $800 unfavorable
Ans. 4	Labor rate variance = (Standard rate - Actual rate) * Actual hours
	($7.50 - $8) * 2,800
	-$0.50 * 2,800
	$1,400	or $1,400 unfavorable
	Labor efficiency variance = (Standard hours - Actual hours) * Standard rate
	(2,880 - 2,800) * $7.50
	80 * $7.50
	$600	or   $600   favorable