Skylnc provides in-flight meals for a number of major airlines. One of the compa

Question

Skylnc provides in-flight meals for a number of major airlines. One of the company's products is stuffed cannelloni with roasted pepper sauce, fresh baby corn, and spring salad. During the most recent week, the company prepared 6,000 of these meals, using 1,150 direct labour-hours. The company paid these direct labour workers a total of $11,500 for this work, or $10 per hour. According to the standard cost card for this meal, it should require 0.20 direct labourhours at a cost of $9.50 per hour. Required 1- What direct labour cost should have been incurred to prepare 6,000 a. meals? Total standard direct labour cost 1- How much does this differ from the actual direct labour cost? (Indicate b. the effect of variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Total direct labour variance 2. Break down the difference computed in requirement 1-b above into a labour rate variance and a labour efficiency variance. (Indicate the effect of each variance by selecting "F" for favourable, "U" for unfavourable, and "None" for no effect (i.e., zero variance).) Rate variance Efficiency variance

Explanation / Answer

Solution 1a:

Direct labor cost should have been incurred to prepare 6000 meals (Standard Direct labor Cost) = 6000*0.20*$9.50 = $11,400

Solution 1b:

Actual direct labor cost = $11,500

Total direct labor cost variance = Standard cost - actual cost = $11,400 - $11,500 = $100 U

Hence standard direct labor cost differ from actual direct labor cost by $100

Solution 2:

Standard rate of labor (SR) = $9.50

Standard hours for actual meals (SH) = 6000*0.2 = 1200 hours

Actual hours (AH) = 1150 hours

Actual rate (AR) = $10 per hour

Labor rate variance = (SR - AR)* AH = ($9.50 - $10)* 1150 = $575 U

Labor efficiency variance = (SH - AH)* SR = (1200 - 1150) * $9.50 = $475 F

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