Exercise 10-2 Direct Labor Variances [LO10-2] SkyChefs, Inc., prepares in-flight

Question

Exercise 10-2 Direct Labor Variances [LO10-2]

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 6,500 of these meals using 3,200 direct labor-hours. The company paid its direct labor workers a total of $36,800 for this work, or $11.50 per hour.

According to the standard cost card for this meal, it should require 0.50 direct labor-hours at a cost of $11.00 per hour.

Required:

1. What is the standard labor-hours allowed (SH) to prepare 6,500 meals?

2. What is the standard labor cost allowed (SH × SR) to prepare 6,500 meals?

3. What is the labor spending variance?

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

(For requirements 3 and 4, indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values. Do no round intermediate calculations.)

Explanation / Answer

1. Standard labor-hours allowed = 6,500 x 0.5 = 3,250 hours

2. Standard labor cost allowed = 3,250 hours x $11 = $35,750

3. Labor spending variance = Standard labor Cost - Actual labor cost
= $35,750 - $36,800 = $1,050 Unfavorable

4. Labor rate variance = (Standard rate - Actual rate) x Actual hours
= ($11 - $11.50) x 3,200 = $1,600 Unfavorable

Labor efficiency variance = (Standard hours - Actual hours) x Standard rate
= (3,250 - 3,200) x $11 = $550 Favorable

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