Oct 302020
 

The actual rate (or actual weighted average rate) paid to labour for the period minus the standard rate multiplied by all hours actually worked during the period; it is actual labour cost minus (actual hours _ standard rate)

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  One Response to “Labour Rate Variance Definition”

  1. The manager of a company estimates the average labour rate for the following year for its production staff will be £20 per hour. This estimate is based on a standard mix of employees on different pay rates, as well as a reasonable amount of overtime hours worked. During the first month of the new year, the company has difficulty hiring a sufficient number of new employees, and so must have its higher paid existing staff work overtime to complete a number of jobs. The result is an actual labour rate of £25 per hour. The company’s production staff worked 5000 hours during the month. Therefore;

    £25 per hour (Actual rate) – £20 per hour (Standard rate) x 5000 hours = £25,000 labour rate variance for the month

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