Which of the following best describes how net sales are used to evaluate the actual weekly labor cost for a 13-person team compared to the target?

• A. Net sales are subtracted from actual weekly labor cost to determine if the team is over or under budget.
• B. Actual weekly labor cost is multiplied by net sales to find the variance from the target.
• C. Net sales are only used to set the target, and actual labor cost is not compared to net sales.
• D. Actual weekly labor cost is divided by net sales to calculate the labor cost percentage, which is then compared to the target percentage.

Answer: (D)

Verified step by step guidance

1. Understand the concept of net sales: Net sales represent the total revenue generated by a company after deducting returns, allowances, and discounts. It is a key metric used to evaluate performance and efficiency.
2. Understand the concept of labor cost percentage: Labor cost percentage is calculated by dividing the actual labor cost by net sales. This percentage helps assess how efficiently labor costs are managed relative to sales revenue.
3. Identify the formula for labor cost percentage: The formula is \( \text{Labor Cost Percentage} = \frac{\text{Actual Weekly Labor Cost}}{\text{Net Sales}} \times 100 \). This formula expresses labor cost as a percentage of net sales.
4. Compare the calculated labor cost percentage to the target percentage: Once the labor cost percentage is calculated, it is compared to the target percentage set by the company to determine if the team is over or under budget.
5. Evaluate the significance of the comparison: If the labor cost percentage exceeds the target percentage, it indicates inefficiency or overspending on labor. If it is below the target, it suggests efficient labor cost management.