Question

Matt's Eat 'N Run has two categories of direct labor: unskilled, which costs $20 per hour, and skilled, which costs $30 per hour. Management has established standards per "equivalent friendly meal," which has been defined as a typical meal consisting of a hamburger, a drink, and french fries. Standards have been set as follows. Skilled labor 3 minutes per equivalent meal Unskilled labor 7 minutes per equivalent meal For the year, Matt’s sold 190,000 equivalent friendly meals and incurred the following labor costs. Skilled labor 9,500 hours $ 291,000 Unskilled labor 11,000 hours 242,000 Required: a. Compute labor price and efficiency variances. b. Compute labor mix and yield variances.

Answer 1

Basic Calculations for standard costs

Basic Calculations

Standard hours for Actual Production (SH) = Standard time per unit x Actual Output

Standard hours for (Skilled Labor)

= 3 min x 190000 units / 60 min per hour

= 9500 Hours

Standard hours for (Unskilled Labor)

= 7 min x 190000 units / 60 min per hour

= 22166.67 Hours

Standard Mix Hour (or Revised Actual Hours) (SM) = Actual hours in standard Proportion

Standard Mix Hour (SM) (Skilled) = 20500 * 3 min / (3 min +7 Min)

Standard Mix Hour (SM) (Skilled) = 20500 * 3 min / (10 min)

Standard Mix Hour (SM) (Skilled) = 9500 Hours

Standard Mix Hour (SM) (Unskilled) = 20500 * 7 min / (3 min +7 Min)

Standard Mix Hour (SM) (Unskilled) = 20500 * 7 min / (10 min)

Standard Mix Hour (SM) (Skilled) = 22166.67 Hours

.

Key Data in standard format

Actual Production is 190000 units
Particulars	Standard			Actual			Revised
	Standard Hours	Standard Rate per Hour	Total Standard Cost	Actual Hours	Actual Rate per hour	Total Actual Cost	Standard Mix Hours
	SH	SR	SC	AH	AR	AC	SM
Labor
Skilled Labor	9500.00	30.00	285000.00	9500.00	30.63	291000.00	6150.00
Unskilled Labor	22166.67	20.00	443333.40	11000.00	22.00	242000.00	14350.00
Sub Total	31666.67		728333.40	20500.00		533000.00	20500.00

.

Calculation of Labor Variances.

(i) Labor Cost Variance = Standard Cost – Actual Cost

= (SR x SH) – (AR × AH)

= SC - AC

= 728333.4 - 533000

= $195,333.40 (Favorable)

(ii) Labor Price Variance = Standard Cost of Actual Time – Actual Cost

a) Labor Price Variance (Skilled Labor)

= (SR – AR) × AH

= (30.00 – 30.63) x 9500

= $5,985 (Unfavorable)

b) Labor Price Variance (Unskilled Labor)

= (SR – AR) × AH

= (20.00 – 22.00) x 11000

= $22,000 (Unfavorable)

c) Labor Price Variance (Total)

= (-5985) + 22000

= $16,015 (favorable)

(iii) Labor Efficiency Variance

= Standard Cost of Standard Time for Actual Production – Standard Cost of Actual Time

a) Labor Efficiency Variance (Skilled Labor)

= (SH – AH) × SR

= (9500 - 9500) x 30

= (0) x30

= Nil

b) Labor Efficiency Variance (Unskilled Labor)

= (SH – AH) × SR

= (22166.67 - 11000) x 20

= (11166.67) x20

= $223,333.40 (Favorable)

c) Labor Efficiency Variance (Total)

= 0 + 223333.40

= 223,333.40 (Favorable)

(iv) Labor Mix Variance = (Revised Standard Hours - Actual Hours) x Standard Rate

Labor Mix Variance = (SM - AH) x SR

a) Labor Mix Variance (Skilled)

= (6150 - 9500) x 30

= (-3350) x 30

= $100,500 (Unfavorable)

b) Labor Mix Variance (Unskilled)

= (14350-22166.67) x 20

= (-7816.67) x 20

= $156,333.40 (Unfavorable)

c) Labor Mix Variance (Total)

= (-100500) + (-156333.40)

= $256,833.40 (Unfavorable)

(v) Labor Yield Variance = ( Standard Hours - Revised Standard Hours) x Standard Rate

Labor Yield Variance = (SH - SM) x SR

a) Labor Yield Variance (Skilled)

= (9500 - 6150) x 30

= (3350) x 30

= $100,500 (Favorable)

b) Labor Yield Variance (Unskilled)

= (22166.67 - 14350) x 20

= (7816.67) x 20

= $156,333.40 (Favorable)

c) Labor Yield Variance (Total)

= 100,500 + 156,333.40

= 256,833.40 (Favorable)