Exercise 8-5 Direct Labor Variances [LO8-5] SkyChefs, Inc., prepares in-flight m

Question

Exercise 8-5 Direct Labor Variances [LO8-5] 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 4,000 of these meals using 750 direct labor-hours. The company paid these direct labor workers a total of $6,000 for this work, or $8.00 per hour. According to the standard cost card for this meal, it should require 0.20 direct labor-hours at a cost of $7.00 per hour. Required: 1. According to the standards, what direct labor cost should have been incurred to prepare 4,000 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.) 2. 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).)

Explanation / Answer

1. According to the standards, what direct labor cost should have been incurred to prepare 4,000 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.)

Direct labor cost should have been incurred to prepare 4,000 meals as per standard = 4000*0.20*7

Direct labor cost should have been incurred to prepare 4,000 meals as per standard = $ 5600

Amount differ from the actual direct labor cost = 6000-5600

Amount differ from the actual direct labor cost = $ 400 Unfavorable

2. 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).)

1) Labor rate variance = (Actual Rate-Standard Rate)*Actual Hour

Labor rate variance = (8-7)*750

Labor rate variance = $ 750 Unfavorable

2) Labor efficiency variance = (Actual Hour-Standard Hour )Standard Rate

Labor efficiency variance = (750-0.2*4000)*7

Labor efficiency variance = 350 Favorable

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