Labour Rate Variance Formula
In labour rate variance
actual cost and standard cost of actual labour spent is compared. Labour rate
variance is favorable, when actual cost is lower than standard cost of labour worked;
otherwise labour rate variance is unfavorable. Labour rate variance can be
calculated following equation or formula
Actual Quantity x (Actual
rate- Standard Rate)
Example
Actual
Labour Hr Spent = 3000
Unit
produced during period = 500
Standard
Labour per unit = 5 hr
Standard
Rate = $6
Labour
Cost = 20,000
Calculate
Labour rate Variance
Solution
Actual
Cost = 20,000/3000=6.667
Actual
Quantity x (Standard Rate-Actual Rate)
=
3000 x (5-1.667)
=
3000 x -1.667
= -5001 (unfavorable)
