Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 27

Labor Mix and Yield Variances

Matt’s Eat ‘N Run has two categories of direct labor, unskilled, which costs $7.50 per hour, and skilled, which costs $15 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	2 minutes per equivalent meal
Unskilled labor	6 minutes per equivalent meal

For the year, Matt’s sold 180,000 equivalent friendly meals and incurred the following labor costs:

Skilled labor	6,000 hours	$92,000
Unskilled labor	15,000 hours	180,000

Required

a. Compute labor price and efficiency variances.

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b. Compute labor mix and yield variances.

Step 1 of 6

MENR uses two types of direct labours one is unskilled and another is skilled. The unskilled direct labor costs $7.50 per hour and skilled labor costs $15 per hour. The unskilled labor takes 6 minutes for one meal and skilled labor takes 2 minutes per equivalent meal.

In the year the company sold 180,000 equivalent meals and the skilled labor takes 6,000 hours to complete the meals and unskilled labor takes 15,000 hours. The cost of skilled and unskilled labor incurred was $92,000 and $180,000.

a.

The Labor price variance and efficiency variance of the MERN for the year is calculated as under:

The labor price variance is the difference between standard cost of labor hours taken for 180,000 equivalent meals and actual direct labor cost.

	Unskilled	Unskilled
Standard cost direct labor per hour (SP)	$15	$7.50
Actual labor hours taken (AQ)	6,000	15,000
Standard cost of actual direct labor hours taken (SP*AQ)	$90,000	$112,500
Actual cost of direct labor (AC)	$92,000	$180,000