Reasons of Adverse labour rate variance

Reasons of Adverse labour rate variance

Adverse labour rate variance mean actual cost of labour is more than total expected cost. Adverse labour rate variance results due to high actual unit labour cost than unit standard cost, because quantity of labour would be same for both costs (i.e. actual quantity).

1.    High Skilled labour

Adverse labour rate variance may result due to high skilled labour, because high skilled labour would demand high wage, which might be higher than standard cost. The higher actual cost than standard cost would result in adverse labour rate variance.

2.    Raise in labour Demand

Adverse labour rate variance may be caused due to raise in labour demand. High demand of labour would push the labour rate upward, which may be higher than standard labour rate.

3.    Inflation

Adverse labour rate reason may be due to inflation in the market. Inflation (increase in price) would raise the actual rate of labour than standard rate, which would create a situation of adverse labour rate. (Actual cost is more than expected cost).