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

Question

AirMeals, Inc., prepares 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 3,500 of these meals using 950 direct labor-hours. The company paid these direct labor workers a total of $10,450 for this work, or $11.00 per hour.

     According to the standard cost card for this meal, it should require 0.30 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 3,500 meals? How much does this differ from the actual direct labor cost?

Number of Meals Prepared

Standard Direct Labor-Hours per Meal

Total Direct Labor-Hours Allowed

Standard direct labor cost per hour

Total direct labor cost

Actual cost incurred

Standard direct labor cost

Spending variance - Unfavorable

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).)

AirMeals, Inc., prepares 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 3,500 of these meals using 950 direct labor-hours. The company paid these direct labor workers a total of $10,450 for this work, or $11.00 per hour.

Explanation / Answer

Answer:

Labor rate variance = Actaul labor hours (Standard rate - Actual Rate) = ($10,450/$11) ($9.5-$11) = $1,425 (U)

Labor efficiency variance = Standard rate(Standard hours - Actual Hours)

= $9.5(3500*0.3 - 10,450/11) = $9.5(1,050 - 950) = $950 (F)

A Number of Meals Prepared 3500 B Standard Direct Labor-Hours per Meal 0.3 C=A*B Total Direct Labor-Hours Allowed 1050 D Standard direct labor cost per hour (in$) 9.5 E=C*D Total direct labor cost (Standard) - in$ 9975 F Actual cost incurred - in$ 10450 G= E Standard direct labor cost -in $ 9975 F-G Spending variance - Unfavorable - in$ 475

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