Labour Rate Variance Formula

Labour Rate Variance Formula

Labour rate variance is difference between the actual rate of actual labour and standard rate of actual labour. Labour rate variance may be favorable or adverse.  Labour rate variance can be calculated following equation or formula

Actual Quantity x (Actual rate- Standard Rate)

Example

Actual Labour on the production of Product X = 5000

Number of Unit produced of Product X = 1500

Standard Labour per unit of product X = 7 hr

Standard Rate = $6

Actual Labour Cost = 50,000

Calculate Labour rate Variance

Solution

Actual Cost per unit = 50,000/5000=10

Actual Quantity x (Standard Rate-Actual Rate)

= 5000 x (6-10)

= 5000 x -4

= -20000 (unfavorable)