AirChefs, Inc., prepares in-flight meals for a number of major airlines. One of

Question

AirChefs, 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 750 direct labor-hours. The company paid these direct labor workers a total of $6,000 for this work, or $8.00 per hour.

     According to the standard cost card for this meal, it should require 0.20 direct labor-hours at a cost of $7.00 per hour.

Compute the labor rate variance and the labor efficiency variance. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance).)

AirChefs, 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 750 direct labor-hours. The company paid these direct labor workers a total of $6,000 for this work, or $8.00 per hour.

Explanation / Answer

Solution:

Labor rate variance $750 U

Labor efficiency variance $350 F

Working:

Actual hours of input at actual rate: AH * AR = 750 * $8 = $6,000

Actual hours of input at standard rate: AH * SR = 750 * $7 = $5,250

Standard hours allowed for output at the standard rate: SH * SR = 800 * $7 = $5,600

Rate variance: $6,000 - $5,250 = $750U

Efficiency variance: $5250 - $5600 = $350 F

Spnding vraiance: $750-$350 = $400U

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