Favorable Labour Rate Variance Example

Favorable Labour Rate Variance Formula

Favorable Labor rate variance would result, when actual rate is lower than standard rate of labour. This concept can be expressed mathematically as under

Actual Cost < Standard Cost = Favorable Labour rate Variance

Actual Quantity x (Standard Rate-Actual Rate)

Example

Labour Spent on a project of production = 2000

Number of Units produced for project = 600 units

Standard Labour hour expected is = 8 hr

Standard Rate of labour for project = $35

Labour Cost of project = 60,000

Calculate Labour rate Variance

Solution

Actual Cost = 60,000/2000=30

Actual Quantity x (Standard Rate-Actual Rate)

= 2000 x (35-30)

= 2000 x 5

= 10000 (favorable)