Labor Rate Variance Example

When there is difference between standard rate of paying laborers and actual rate of paying laborers, at that time, labor rate variance happens. Labor rate variance may be either favorable or unfavorable. If our actual rate of paying to laborers is more than standard rate of paying to laborers, it will be unfavorable rate variance. We have to find the reasons of unfavorable labor rate variance. If our actual rate of paying to laborers is less than standard rate of paying to laborers, it will be favorable labor rate variance. It shows, we have to deal with laborers efficiently. We follow this system for more saving of company's money.

Labor Rate Variance Formula = Actual Time ( Standard Rate - Actual Rate )

Now, we explain labor variance with example

Calculate labor rate variance from given information :


Gross Direct Wages = $ 3000
Standard hours produced = 1600
standard rate per hour = $ 1.50


Actual hours paid 1500 hours.


First of all we have to calculate actual rate per hour of wages = Actual labor cost/ Actual hours worked


= $ 3000 / 1500 hrs = $ 2 per hour


Now, we will calculate labor rate variance = 1500 hrs ( $ 1.50 - $ 2.00 ) = $ 750 ( Unfavorable)


This labor rate variance is unfavorable because we have paid to each laborer more than what is our standard rate per hour for paying laborers. There may be lots of reasons of this. Labor organization has increased by  $ 0.50 per hour or we have hired laborers at high rate. So, this variance will be very helpful for company for reducing the cost of laborers. 

Sometime, We have to calculate missing figures before calculating labor rate variance. See this example 


Calculate labor rate variance from following information:



Standard  Actual
Nos. of men employed  100  90
Output in units  5000  4800
 Number of working
days in a month
 20  18
Average wages per man per
month
 $ 200  $ 198

First, we calculate standard rate, actual rate standard t ime and actual time which are not directly given in the question. 


Actual wages per man per month 


= Standard wages per man per month / standard working days in month 

= $ 200 /20 = $ 10


Actual working days in a month 


= Actual rate per day = actual wages per man per month / actual working days in a month 

= $ 198 / 18 = $ 11




Actual man days = number of men X working days = 90 X 18 = 1620 man days


Labor Rate Variance = 1620 man days ( $ 10 - $ 11 ) = $ 1620 (Unfavorable)

Related : Material Yield Variance Example

COMMENTS

Comments on this Website
.
Share above Content to Your Friends



Name

access account accountant Accounting accounting definitions accounting ebook Accounting education accounting procedure accounting process outsourcing Accounting Software advance advertising africa Amalgamation amendments announcements Annuity assets audit auditing Australia B.Com. balance sheet bank Bank reconciliation banking basic accounting BBA benefits best bill black money blog bloggers book keeping bookkeeping Branch Accounting - full tutorial budget Budget variance business businessman CA calculator canada capital capital budgeting career cash cash book cash flow statement Chiense children china class coaching coins college commerce commerce students company computer computer accounting conference Contact vinod kumar corporate accounting cost cost accounting cost center cost centre CPA credit credit card cs currency data Debit and credit debit cards debt debtor degree depletion depreciation documents dollar domain Downloads Dubai e-accounting earning education Education Loans email employee EPF ERP euromoney examination excel excise duty expenses facebook factor of loan fans feature fifo FII fiji finacle finance Financial financial accounting fire insurance flickr flow forensic forex formula france fraud free fun function fund GAAP GDP gdr germany gold goodwill goodwill accounting google google apps google apps google base google buzz google calendar Google docs google finance google fusion tables google talk govt. GST guide health Hindi Hindi Language history holding company How to treat FBT in Tally 9 HRA ICAI ICAWI ICICI Bank IFRS income income statement Income Tax India indian railway Indonesia inflation inflation accounting infographics information inspiration insurance insurance accounting interest international Internet Introduction of Tally 9 inventory investment invoice IT Japan Job costing journal entries Kalculate keyboard kindle kuwait laptop law LBT learning lease lecture ledger leducation Leverage Analysis liabilities lifo linkedin loan logical point loss loss of profit M.Com. m.phil malaysia management accounting manual accounting manufacturing account market marketing mastercard material MBA MCA media migration mobile money ms word ms. excel multi currency in tally 9 Multicurrency Accounting mutual fund national security new and sacrifice ratio new york times new zealand news NGO nonprofit-accounting North Georgia Mountains NPV NSE odbc office oman online application online accounting otcei pakistan parents pay pal pdf pie chart pie chart of income pnb podcast ppf presentation price privacy policy prize money prof. vinod kumar profit profit and loss account project management provision purchase puzzles quickbooks Quote quotes quotes of svtuition rating agency ratio analysis RBI readers real estate rectification of errors remote control reports reserves responsibility accounting retirement revenue Revenue reserves review risk rupees salary sale saudi arabia saving sbi scholarship school SEBI security service tax share share trading Shares shri lanka singapore sms social accounting society solution South Africa stock stock exchange structure student students study subsidiary company svtuition swiss bank tally tally 9 Tally 7.2 Tally 9 Tally.ERP 9 tanzania tax Tax Accounting TDS teacher teaching technology test testimonial testimonials thailand tips trading trading on equity transaction trend trial balance tuition twitter UAE UGC - NET Commerce UK United Arab Emirates university usa valuation VAT Video Voucher and vouching wikipedia working capital youtube
false
ltr
item
Accounting Education: Labor Rate Variance Example
Labor Rate Variance Example
Accounting Education
http://www.svtuition.org/2011/06/labor-rate-variance-example.html
http://www.svtuition.org/
http://www.svtuition.org/
http://www.svtuition.org/2011/06/labor-rate-variance-example.html
true
2410664366776677676
UTF-8
Not found any lecture VIEW ALL Readmore Reply Cancel reply Delete By Home PAGES Lectures View All RECOMMENDED FOR YOU Category ARCHIVE SEARCH ALL Lectures Not found any lecture match with your request, please help to write it and send it to our email at vinod@svtuition.org for making this website free accounting and finance encyclopedia. Back Home Sunday Monday Tuesday Wednesday Thursday Friday Saturday Sun Mon Tue Wed Thu Fri Sat January February March April May June July August September October November December Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec just now 1 minute ago $$1$$ minutes ago 1 hour ago $$1$$ hours ago Yesterday $$1$$ days ago $$1$$ weeks ago more than 5 weeks ago Followers Follow THIS CONTENT IS PREMIUM Please share to unlock