Computing Labor Rate Variance and Labor Efficiency Variance AirChefs, Inc., prep
ID: 2595543 • Letter: C
Question
Computing Labor Rate Variance and Labor Efficiency 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 6,700 of these meals using 1,300 direct labor-hours. The company paid these direct labor workers a total of $16,900 for this work, or $13.00 per hour.
According to the standard cost card for this meal, it should require 0.20 direct labor-hours at a cost of $12.50 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).)
The answers I got were $650 for labor rate variance and $500 for Labor efficiency variance. I do not understand whether they are favorable or unfavorable.
Computing Labor Rate Variance and Labor Efficiency 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 6,700 of these meals using 1,300 direct labor-hours. The company paid these direct labor workers a total of $16,900 for this work, or $13.00 per hour.
Required: 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).) Labor rate variance Labor efficiency varianceExplanation / Answer
Labor rate variance=Actual hours*(Standard rate-Actual rate) Labor rate variance=1300*(12.50-13)=650 U (Since actual rate is more than standard rate,variance is unfavorable) Labor efficiency variance=(Standard hours required-Actual hours)*Standard rate Standard hours required=Actual production*Standard hours per meal Standard hours required=6700*0.20=1340 hours Labor efficiency variance=(1340-1300)*12.50=500 F (Since actual hours used is less than standard hours required,variance is favorable)
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