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 7,300 of these meals using 1,450 direct labor-hours. The company paid these direct labor workers a total of $14,500 for this work, or $10.00 per hour.

     According to the standard cost card for this meal, it should require 0.20 direct labor-hours at a cost of $9.50 per hour.

According to the standards, what direct labor cost should have been incurred to prepare 7,300 meals? How much does this differ from the actual direct labor cost? (Round labor-hours per meal and labor cost per hour to 2 decimal places.)

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

     According to the standard cost card for this meal, it should require 0.20 direct labor-hours at a cost of $9.50 per hour.

Explanation / Answer

1. According to standards, the direct labour cost should have been = No. of units * No. of labour hours per unit * Cost per hour

= 7300*0.2*9.5

= 13870

Difference = 14500-13870 = 630 U

2. Labor rate variance = (9.5-10)*1450 = 725U

Labor efficiency variance = (7300*0.2-1450)*9.5 = 95F

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