10-3 Direct Labor Variances [L03] SkyChefs, Inc., prepares in-flight meals for a

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.

Explanation / Answer

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)

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