Reasons of Favorable Labour Rate Variance

Reasons of Favorable Labour Rate Variance

When the actual cost is lower than standard cost, then variance is said to be favorable labour rate variance. Reasons for favorable Hiring of lower quality of labour, lowering the wage rate for the labour, and deflation in the economy.

1.    Unskilled labour

Favorable labour rate variance may be achieved by applying low skilled labour, as the rate of low skilled labour would be lower, which would result in favorable labour variance.

2.    Low Wage Rate

Favorable labour rate variance can be obtained by lowering the wage rate or wage cut. This would again lower the total actual cost against total standard cost.

3.    Deflation in the economy

Economy slow growth rate also lower the wage rate in the economy. This is due to low demand of labour in the economy and more supply of labour.