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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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Section
BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Direct labor variances for a service company

 Hit-n-Run Food Trucks, Inc. owns and operates food trucks (mobile kitchens) throughout the West Coast. The company’s employees have varying wage levels depending on their experience and length of time with the company. Employees work eight-hour shifts and are assigned to a truck each day based on labor needs to support the daily menu. One of the trucks, Jose O’Brien’s Mobile Fiesta, specializes in Irish-Mexican fusion cuisine. The truck offers a single menu item that changes daily. On November 11, the truck prepared 200 of its most popular item, the Irish Breakfast Enchilada. The following data are available for that day:

Quantity of direct labor used  
(3 employees, working 8-hour shifts) 24 hrs.
Actual rate for direct labor $15.00 per hr.
Standard direct labor per meal 0.1 hr.
Standard rate for direct labor $15.50 per hr.

 a.    Determine the direct labor rate variance, the direct labor time variance, and the total direct labor cost variance.

 b.    Discuss what might have caused these variances.

a.

To determine

Direct labor variances:

The difference between the actual labor cost in the production and the standard labor cost for actual production is known as direct labor cost variance. The direct labor variance can be classified as follows:

    • Labor rate variance.
    • Labor time variance.

To determine: The direct labor rate variance.

Explanation

The direct labor rate variance is determined as follows:

Direct labor rate variance = [(Actual rate per hourStandard rate per hour)× Actual hours]=[($15

b.

To determine

To discuss: The cause of these variances.

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