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

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 4000 of these meals using 960 direct labor hours. The company paid these direct labor workers a total of $9600 for this work, or $10.00 per hour.
According to standard cost card for this meal, it should require 0.25 direct labour-hours at a cost of $9.75 per hour.

What direct labor cost should have been incurred to prepare 4000 meals? How much does this differ from the actual direct labor cost?

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

Explanation / Answer

What direct labor cost should have been incurred to prepare 4000 meals? How much does this differ from the actual direct labor cost? Total Labor variance = (Actual Hours X Actual Rate) – (Standard Hours – Standard Rate) = (960 X 10) – (1000 x 9.75) = 9600 – 9750 = $150 Break down the difference computed in (1) above into a labor rate variance and a labor efficiency variance Labor rate variance = (Actual Hours x Actual Rate) – (Actual Hours x Standard rate) = (960 X 10) – (960 x 9.75) =9600 – 9360 = ($240) Labor efficiency variance = (Actual Hours x Standard Rate) – (Standard Hours X Standard Rate) = (960 x 9.75) – (1000 x 9.75) = (9360 – 9750) = $390

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