Question

10-3 Direct Labor Variances [L03]
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 4,000 of these meals using 960 direct labor-hours. The company paid these direct labor workers a total of $9,600 for this work, or $10.00 per hour. According to the standard cost card for this meal, it should require 0.25 direct labor-hours at a cost of $9.75 per hour. -

Required:
l. What direct labor cost should have been incurred to prepare 4,000 meals? How much does this differ from the actual direct labor cost?

2. Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance.

Answer 1

Standard timeto prepare a meal =0.25 labor hours

Total meals prepared=4000

Standard time required to prepare 4000 meals=

4000×0.25=1000 labor hours

Standard labor hours required =1000 hrs

Standard labor hour rate=9.75 per hour

Standard cost to prepare 4000 meals

Standard hrs×Standard labor hour rate

1000×9.75=9750

Difference in cost

Standard cost-Actual cost

9750-9600=150

Labor rate variance

Actual labor hours×(Standard rate-Actual rate)

Actual labor hours=960

Standard rate =9.75 per hr

Actual per =10 per hr

960×(9.75-10)=240(unfavorable)

Labor efficiency variance

Standard hourly rate×(standard hours-Actual hours)

9.75×(1000-960)=390(favourable)

Labor rate variance        =240(unfavourable)

Labor efficiency variance =390(favourable)

Difference                       =150(favourable)