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.

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 3,400 of these meals using 1,300 direct labor-hours. The company paid its 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 0.40 direct labor-hours at a cost of $12.00 per hour.

Required:

1. What is the standard labor-hours allowed (SH) to prepare 3,400 meals? 

2. What is the standard labor cost allowed (SH × SR) to prepare 3,400 meals?

3. What is the labor spending variance?

4. What is the labor rate variance and the labor efficiency variance?

Explanation

1.

Number of meals prepared (a)	3,400
Standard direct labor-hours per meal (b)	0.40
Standard labor-hours allowed (a) × (b)	1,360

2.

Standard labor-hours allowed (a)		1,360
Standard direct labor cost per hour (b)	$	12.00
Standard labor cost allowed (a) × (b)	$	16,320

3.

Actual cost incurred (a)	$	16,900
Standard labor cost allowed (b)	$	16,320
Labor spending variance (a) – (b)	$	580	U

4.

Actual Hours of Input, at the Actual Rate				Actual Hours of Input, at the Standard Rate			Standard Hours Allowed for Output, at the Standard Rate
(AH × AR)				(AH × SR)			(SH × SR)
1,300 hours × $13.00 per hour				1,300 hours × $12.00 per hour			1,360 hours × $12.00 per hour
= $16,900				= $15,600			= $16,320
	Labor rate variance, $1,300 U				Labor efficiency variance, $720 F
		Spending Variance, $580 U

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