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

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 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?

1. Standard labor hours allowed =

2. standard labor cost allowed

3. labor spending variance = ... and (favorable / unfavorable)

4. labor rate variance = ... and (favorable / unfavorable)

5. labor efficiency variance = ... and (favorable / unfavorable)

Explanation / Answer

1) Standard labour hours allowed = 6500*0.5 = 3250 Hrs

2) Standard labour cost = 3250*11 = 35750

3) labour spending variance = 35750-36800 = (1050) unfavourable

4) Labour rate variance = (SR-AR)*AH = (11-11.50)*3200 = (1600) unfavourable

5) Labour efficiency variance = (SH-AH)*SR = (3250-3200)*11 = 550 favourable

Therefore, Labour spending variance = Labour rate variance + Labour efficiency variance

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